Hear directly from RBC Global Asset Management Chief Economist, Eric Lascelles in his monthly and quarterly updates. Representing RBC Investment Strategy Committee’s (RISC) economic views, Eric shares timely insights and the expectations of RBC GAM on the global economy.


Monthly Economic Webcast

Monthly Economic Webcast

Chinese Challenges - September 2015

Eric Lascelles, Chief Economist, RBC Global Asset Management, shares the latest views on the global economy and offers insight into today’s economic issues.

The webcast includes an audio and slide presentation.

Launch Presentation
 

Key Highlights

  • The slowdown in China's economy has been consequential for the rest of the world. China represents about 13% of global GDP and accounts for around 30% of global growth. Various global financial markets have responded to its slowdown with a sharp correction. Stock markets in North America have fallen, bond yields are down, global currency markets are in flux, and commodity prices have declined.

  • Weakened commodity prices and longer-term commodity trends are renewing concerns of deflation in several developed countries. In the end, low commodity prices and low interest rates are stimulative and good for global growth. We do not believe China's slowdown is a recessionary blow to other economies, and we have largely accommodated it in our forecasts for some time.

  • Chinese stocks were clearly overvalued going into this summer, so their recent correction was not a shock to us. The related decline in global stock markets has resulted in better equity valuations. Stocks generally, we believe, have gone from being fairly valued before the decline to being slightly attractive now. This is an opportunity for investors. We have managed to capitalize on it, to a degree, in rebalancing our portfolios as stock prices fell and bond prices rose.

  • Emerging market economies continue to slow, partly due to China. We haven't seen a clear bottom yet. In Canada, the economy remains under siege. The decline in commodity prices, particularly crude oil, has led to very weak growth (in fact, a contraction through the bulk of 2015). Canada may see some growth going forward this year, but not much. We have seen a big drop in Canadian business investment, and a softer currency has not yet helped Canadian exports as much as many would have expected, though it may in time.

  • China has accrued a lot of credit and is showing some signs of distress in terms of non-performing loans. Less credit growth means less economic growth, which seems to be the process China is going through now and why commodity prices are lower. There are numerous potential debt hot spots around the world relating to external debt, though possibly less acute risk than there might have been a month or two ago because it's less urgent now for the U.S. Federal Reserve (FED) to begin tightening in September. Concerns about China and deflation means it may be more likely that the FED starts tightening in December.

  • Global leading indicators are still consistent with economic growth. The recent round of U.S. economic data has been nicely positive and may continue to improve. We are not getting a global recession signal by any means. We see mediocre economic growth, a familiar result in the context of the last several years.

 

Quarterly Economic Video

Eric Lascelles - Summer 2015

In the latest instalment, Eric provides an overview of how economic activity has unfolded this past quarter in regions across the globe.


RBC GAM English Player

View Transcript

Key Highlights

  • Overall, this quarter, the global economy is a little weaker. There is a slight downward trend as the world's two largest economies, U.S and China, have both slowed. However, bond yields have remained low and oil prices have stabilized at sharply lower levels, providing a slight tailwind when combined with weaker exchange rates. As a result, we generally predict the global economy will start to make clearer strides as we move into 2016.
  • The biggest risk focus this quarter has been around Greece. But the risks there are arguably diminished in general compared to where they would have been a few years ago, as other countries in the eurozone are finding their feet and the contagion threat is generally diminished. We can likely expect higher bond yields over the next several quarters and years with the U.S. Federal Reserve (Fed) thinking about rate tightening.
  • Overall, the world should be fine in a higher rate environment, but it's undeniable there are some pockets of vulnerability. Ultimately, there are downside risks in the world. This is one of the reasons why we're not aggressively overweight risk assets like the stock market. But we still think it's a manageable risk.
  • In regards to future prospects in emerging market (EM) economies, overall they have slowed. 2015 represents a bottom, but they may manage more growth in 2016. The economic outlook is enormously varied depending on the country in question. As a result we can be selective and there are quite a number of opportunities within certain countries. Although, emerging market countries are still out-growing the developed world despite some of the challenges that they face.
  • There is a shifting U.S. environment, and as a result, the first quarter numbers were atrocious. It's not all bad for the U.S. though: general economic output is solid, hiring has picked up, and the Fed is confident enough to tighten rates in the fall of 2015. The eurozone economy still has the lowest downside risks in the world as it continues to grow this quarter, and still benefits enormously from the low oil, low rates, low exchange rate combination that has been fairly potent over the last little while. Japan's GDP numbers are still strong, loan and credit growth is moving well.
  • Canada is currently still dealing with low oil prices and it has been a difficult year. As a result, there has been growth, but not 'good' growth.  In general, growth should be bottoming out this year as emerging market economies move faster over the next year, increasing energy demand.
  • From a market perspective, stocks are fairly valued. The U.S. dollar can continue to strengthen versus the Canadian dollar and will gradually move higher going forward.

Economic Compass

Eric Lascelles

Chief Economist
RBC Global Asset Management Inc.

View Biography >