RBC's 2020 outlook

Ruth Saldanha: RBC recently released its outlook for the next decade with a report titled "Navigating the 2020s." In it, RBC highlights 4 key themes for Canada – climate change, an aging population, technological advances and slowing growth. What are the challenges and opportunities for each? Dawn Desjardins, Vice President and Deputy Chief Economist at RBC, is here today to talk about the report and what it means. Dawn, thank you so much for being here today.

Dawn Desjardins: Thanks for having me.

Saldanha: Let's start with climate change. ESG investing is one of the key themes for us here at Morningstar as well and you chose to start the report highlighting green as both a challenge and an opportunity. Why is that?

Desjardins: Well, it certainly is one of the biggest factors that we think that will influence the economy as we go through the decade ahead. We know that there is appetite by investors to provide funds for research into technology to ensure that companies are moving the dial in terms of improving, in the energy space, for example, energy emissions efficiency. And so, we think that that will be a very important factor and that we should be highlighting it first and foremost to see it as a challenge because, of course, as we know, costs for households, for businesses and certainly, insurance costs have been rising quite significantly because of climate change. So, what can we do to combat that? What are the opportunities? And so, we thought it was important to highlight that first right off the top.

Saldanha: For Canada, in particular, energy is a key part of our economy. Now, this shift to green, what kind of an impact will it have on the economy as a whole?

Desjardins: Well, I certainly think that when we look at the energy space, Canada's companies and the energy companies have, in particular, reduced the amount of emissions per barrel. They've been investing in clean technology, and that's very, very important. So, we look at what is the demand for energy? Well, domestically, quite likely we're going to see a reduction in demand. We have a lot of efficiencies in transportation, et cetera, that will reduce that demand. However, externally, there's lots of demand for energy. So, we think that it's important for Canadian companies to be able to supply that energy. We are aware of the emissions risks. We are seeing companies really try to reduce those emissions. And we think that it also will have an ancillary effect in that Canadian companies can also with their investment in green technology and clean technology, be able to export that abroad.

Saldanha: You believe that the 2020s will be a period of slower growth. If energy is set to do well then why is that and what is the impact going to be?

Desjardins: Well, it's a factor of structural impediments, I guess, to growth. When we look at population growth, yes, in Canada, it is picking up but we're also aging. And so, the number of new entrants into our labor force is slowing, growing at about 0.5 percentage point per year. The other part of a slow growth environment is productivity. And in the post-recession period, productivity gains in Canada running about 1%. Now, that was 2% prior to the Great Recession. So, when you add these two things together, what it means is that the speed limit for our economy is slower now. And therefore, we can look at numbers. If we see growth of 1.6%, 1.7%, that no longer is, oh, my goodness, that's a very slow-growing economy. That's an economy that's going right in line with its potential.

So, I think when we think about what does it mean for a slow-growth economy, it doesn't mean a no-growth economy. It means that we are going to continue to grow, but that we have these impediments. Now, certainly, if we saw a pickup in productivity, that could increase our speed limit once again, but that would take significant effort and investment, I think, to change that.

Saldanha: You spoke about our aging population. And in the report, you talk about it as a ticking time bomb. Where do you see opportunities in this and why is it such a time bomb?

Desjardins: Well, our aging population means that our working population is actually shrinking compared to those over the age of 65, or near or at retirement age and children under the age of 14. It puts a lot of strain on that working age population. We only have 1.7 people who are going to have to support these two other cohorts, and that's down from over 2. So, it does suggest that in terms of opportunities, we need to encourage all people who are in that working age to engage in the labor market. So, that means likely we need to reduce some of the gaps that we're seeing. For example, the wage gap between women and men, the wage gap for immigrants who come to Canada. So, all of these gaps being eliminated will, we think, entice more people to participate in the labor market. And so, that is in itself an opportunity, getting these people back or getting them even to enter the labor market. I guess the other opportunity that we look at is, what is the big thing that accompanies people who are aging. Well, it's how they're going to live their lives.

Saldanha: Thank you so much for joining us today, Dawn.

Desjardins: Thanks for having me.

Saldanha: For Morningstar, I'm Ruth Saldanha.