TECHNOLOGY @ RBC

Sharp, but partial, bounce-back for economy in Q3 ■ Economic activity bounced back sharply in Q3 in Canada, although still only partially reversed unprecedented declines in Q2 amid COVID-19 containment measures. Fiscal/monetary policy measures supported the early economic recovery. Unemployment remains very elevated, but government support programs continue to provide larger than normal income replacements for those losing work. We expect the pace of improvement in the economic recovery will slow late in 2020 and in early 2021 - in part because of re-instated virus containment measures in the hospitality sector. A rising share of remaining unemployed are on permanent layoff and will likely take longer to match with new positions. The economy, and labour markets, will still be running well-below long-run capacity limits at the end of the year. ■ Global demand and supply-chain disruptions have also eased. International trade flows have begun to recover, along with the Canadian manufacturing sector. Oil prices have increased, but investment in the oil & gas sector is still exceptionally depressed. The recovery in the U.S. economy is also expected to be limited by the continued proliferation of cases of COVID-19, at least until an effective vaccine can be widely distributed. ■ We expect Canadian GDP to contract 5.9% in 2020 and bounce back 4.4% in 2021. Annual headline inflation will fall to 0.6% for 2020 by our count, due to decline in demand for services and lower oil prices. Employment has retraced more than three-quarters of the 3 million jobs lost over March and April to-date through October. But the unemployment rate is still elevated at 8.9% as of October. 5 4 3 2 Canadian Inflation (YoY) (1) Canadian Inflation (YoY)(¹) Ариз 1 0 -1 -2 2000 2001 2002 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2014 2015 2016 2017 2018 2019 2020 - Headline BoC Target (1) Statistics Canada, RBC Economics Research. (2) Statistics Canada, Bureau of Labor Statistics, RBC Economics Research. 48 | ECONOMIC BACKDROP Canadian Labour Markets (YoY) (2) Canadian Labour Markets (YoY) (2) 13 12 11 10 9 8 7 6 5 1991 1992 1993 1994 1996 1996 2001 1997 866T 6001 666T 1000 TOOZ 3001 วกก EUUL 7007 2003 2004 2006 2006 2007 วกคร 2008 Employment growth (YOY% - RHS) ppo 6007 BUU TTOZ ZIOZ วกงา STOZ 2013 2014 2014 2016 2017 2018 2019 Unemployment rate (% - LHS) 0 -1 -2 543N HOT 23 2 1 -3 RBC

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