Q1 2023 Financial Results

Slowing Growth, Nearing End of Policy Tightening Cycle With inflation at multi-decade highs in several economies, central banks have significantly increased their policy rate over last year to re-align demand with supply and reduce inflation. There are increasing signs that inflation is now trending down in several economies with improved supply chain conditions, lower commodity prices and transportation costs, and healthier inventory levels. These disinflationary pressures were partly offset by robust wage growth, consistent with currently tight labour market conditions. Canada and other economies have been surprisingly resilient to the sharp rise in policy rates. Recent indicators suggest growth is slowing but less than suggested by previous rate hike episodes. We still expect the global economy to slow in 2023—with a mild recession in Canada and the United States-as policy rates reach their cyclical peak by mid-2023 in several economies and stabilize near these levels until about early 2024. A soft-landing is now more likely than we previously expected. The Bank of Canada and the U.S. Federal Reserve both raised their policy rate to 4.50% (the upper bound of the U.S. Fed Funds target) by the end of January 2023. We now predict that the policy rate has reached its cyclical peak in Canada but will increase further in the U.S. to a terminal rate of 5.25% by the end of the second quarter of 2023. These peak levels will be maintained for 3 quarters in each country and start declining thereafter. Central banks in the Pacific Alliance Countries have also been raising policy rates aggressively to counter inflationary pressures. This process is also nearing its end as the pace of economic expansion moderates. Canada: Bank of Canada Policy Rate vs Headline Inflation 98765 % Canada Unemployment Rate 25 PAC Unemployment Rates %, SA PAC Inflation 16 16 % 14 forecast Chile 14 20 12 12 Colombia Mexico Peru 10 15 10 8 10 60 5 620 864 201 Y/Y % change 4 -2 -1 Policy rate Chile Mexico Colombia Peru 2 0 2018 2019 2020 2021 2022 2023 2024 2015 2017 2019 2021 2023 2010 2012 2014 2016 2018 2020 2022 2006 2010 2014 2018 2022 60 Sources: Scotiabank Economics, Bank of Canada, Statistics Canada, Haver Analytics. st 4 1 32-0 Headline inflation

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