Remarks to the London Chamber of Commerce
Economic Outlook 2011
President & Chief Executive Officer
Royal Bank of Canada
September 23, 2010
Good afternoon and thank you Don for your introduction. My thanks as well to the London Chamber of Commerce for inviting me to speak.
The London Economic Development Corporation is also here
today, and I'm told both groups are working closely with City
Council to engage the community and build prosperity in London
and the surrounding region. It is through such partnerships
that the success and well-being of our communities are assured,
and it appears that London is in good hands.
There are many talented leaders here, united in their determination
to create new jobs, attract new investment, and enhance the
quality of life in London. I'm very pleased to share the podium
today with Brian Young of 3M, Steve Baker of the London International
Airport, and Peter White of the London Economic Development
This morning, I'd like to talk about some of the key economic
opportunities and realities we face as we extract ourselves,
with painful slowness, from the global financial and economic
The global and financial crisis began in the US real estate
market and spread like fire, contributing to the failure of
companies, destroying trillions of dollars of wealth, pilling
on substantial government debt and causing a steep drop in
global economic activity from which we have yet to recover.
I could talk for hours on the causes and the culprits, and
there were many, but the fact is that excessive leverage and
liquidity across much of the developed word results in an
asset bubble that when collapsed caused an economic decline
not seen since the Great Depression.
Fortunately, amid the economic destruction, Canada's performance
drew international praise for our country's strength, stability,
risk aversion and good management.
The IMF attributed Canada's resiliency to sound macroeconomic
policy, a proactive government and regulators, and well capitalized,
well managed banks. The World Economic Forum used the strength
of Canada's banking sector as a criterion for rating Canada
one of the world's ten most competitive economies.
The fact of the matter is that there were a number of reasons
for Canada's outperformance, from the structure of our residential
mortgage market to decades of sound fiscal and monetary policy,
leading up to the crisis. Global demand for our resources
and commodities helped provide some underlying stability to
certain regions across the country.
Whether good luck or good management, or a combination of
both, this was a startling silver lining, not just for RBC
but for all things Canadian. While Canada has not been without
its challenges, the impact on our quality of life and the
mood and confidence in our nation is in stark contrast to
most developed countries, and particularly the United States
and Europe. We are challenged but they are in crisis.
The past three years, in my view, have been a transformative
period for our country, where our fiscal discipline, regulatory
and banking system, and our culture and values became front
page news around the globe. This has been and remains Canada's
time, and it is a great opportunity for us to take advantage
of our relative strength to advance our position and standing
in the global economy.
On a micro basis, we have felt this transformation in our
international capital markets and wealth management businesses.
Companies used to dealing exclusively with the large US and
European investment banks invited us to the table for the
first time. Canada's reputation for careful conservatism --
now drawing international praise -- meant we could grow while
others were pilloried by customers, the media and government.
But for our organization, for your businesses and institutions,
and the country as a whole, we must aggressively find ways
to capitalize on this relative strength or it will be a lost
While the sharper edges of the crisis are controlled, business
leaders around the world, including those in Canada, still
face the task of adapting to an uncertain and new economic
Still in motion are the economic recovery, consumer confidence,
sovereign debt and regulatory reform of financial services.
We all watch uneasily as new US data comes out showing that
houses are not selling, employers are not hiring and businesses
are not investing.
Our neighbour to the south is clearly in for a long and painful
recovery period. Economists argue about whether we are going
to have a double dip recession -- most Americans want to know
when the first one was over. We have housing prices basically
at 30 year lows in the United States with very little optimism
for improvement in the short term, unemployment is stuck in
and around or just under the 10% level, and of course that's
the official unemployment numbers.
The fiscal situation is deteriorating from a very dangerous
position with deficits running at $1.5 trillion dollars. The
idea of spending $1.5 trillion dollars more than you have
is really quite staggering and, unfortunately, as we in Canada
learned in the 1990s, the fix requires increased taxes, decreased
spending, and strong political will, none of which is in abundance
during these difficult times. In my judgement, we're going
to be living in a world with slow U.S. growth, (still the
largest economy in the world, and our largest and most important
market) and this has implications for Canada, its businesses
and its communities.
We as a country have to adjust to a new economic paradigm
and a global re-balancing by ensuring strong stable domestic
growth, enhanced productivity and competitiveness, and increased
trade with alternative markets, in particular, emerging markets
that will account for most global expansion.
This is particularly the case for Ontario because, while
Canada escaped the global recession virtually unscathed, different
regions of our country were impacted differently with heavily
weighted manufacturing regions, such as Southwest Ontario,
feeling the greatest stress and, therefore, the greatest areas
to re-balance. Ontario has to find ways to grow with less
dependence on strong U.S. growth -- but it can.
London's recovery is now underway after two years of economic
challenges: decreased investment, an auto sector in turmoil
and employment falling by nearly 7%.
It's a reminder of the long reach every global financial
shudder. When Greece's economy founders, we feel it. When
China unseats Japan as the world's second-largest economy,
we feel it. When the financial crisis spread to all corners
of the globe, it did so at such speed, and with such thoroughness,
that we all saw how porous and interlinked our borders have
While we have significantly outperformed, national economies
have learned that they cannot operate in isolation but we
see some stability we must position ourselves to success in
the new normal that lies ahead.
How We Can Capitalize on Our Window of Opportunity
Here in Canada, while we can all be proud of our national
resilience in navigating the global financial crisis, the
truth is that today's reality is far different than the years
preceding the crisis. The world of excessive leverage, unlimited
liquidity, strong global growth and asset inflation are over
and we must re-calibrate our businesses to reflect slower
growth in the West and focus on long term sustainable and
responsible value creation.
U.S. Consumers remain uncomfortable with the economy, the
job market, and the housing market. This uncertainty is reflected
in US saving rates which have soared from one to two percent
of after tax income before the recession to 6.4 percent in
US consumers have been saving, not spending, as expectations
about the economy and job security continue to fall.
In contrast, the Canadian consumer actually increased spending
during the recovery period and have grown debt levels. However,
it remains to be seen whether this behaviour will continue
should interest rates rise, or our economy sputter.
What we do know for certain is that businesses can't build
strategies anymore on the basis that free-spending consumers
will fill their coffers. The days of middle America putting
a car in the driveway for every family member are probably
over, and the capacity for individual Canadians to increase
leverage is limited. The new consumer is looking for products
that deliver long-term value and address needs more than wants.
A much greater premium will be placed on innovation and productivity.
Focus on Improving Productivity
With consumers thinking twice about their spending habits,
business leaders have to look for other opportunities to improve
profits and grow. Productivity improvement is a tough issue
to address, but will be an essential component of Canada's
ability to take advantage of our relative strength and compete
- particularly in international markets.
Today's economic reality says that your measure is not how
you're doing against your competitor in Windsor or Toronto,
but how you are doing against a global backdrop.
Not only are our fundamentals strong, but we are currently
in a period where Canada is going in a different direction
than many other industrialized countries in the world.
Where other countries are becoming more protectionist in
their trade policies, Canada is open.
Where other countries are limiting immigration, Canada is
encouraging it. While taxes are increasing in many industrialized
nations, ours are declining. And our national balance sheet
has been managed more conservatively, a trend that is essential
that we maintain. If we can continue to differentiate ourselves,
we will be able to invest more aggressively than others and
the payoff will be significant. But we can't be smug and we
must address our lagging productivity and focus on innovation.
Canadian companies must move past seeing Chinese firms as
an economic and competitive threat... and see them instead
as potential partners that can help Canadian firms be more
efficient and competitive internationally. Chinese firms have
proven, competitive strengths as subcontractors, especially
for high volume, labour intensive businesses. Canadian firms
have proven, competitive strengths in R&D, design and
high skill manufacturing.
Put these strengths together and you have a combination that
can succeed anywhere in the world, while ensuring Canada continues
to have vibrant manufacturing centres, including the London
area. But we must increase our investment in R&D and focus
on those areas where we can innovate and lead.
Despite all the nay saying about the future of manufacturing
in Canada, innovative companies with the market access and
skilled workers that London offers are ideally positioned
to thrive. Shining examples of this include Diamond Aircraft
Industries Inc with 600 skilled employees, and Armatec Survivability
Inc. whose products save the lives of our Canadian military
Canadian governments have stepped up to address the issue
of productivity, with policies implemented, such as reducing
regulatory burdens on business, tax reform and tax relief,
but the business community must also play a role.
When the private sector in Canada makes those all-important
productivity-enhancing investments, the benefit extends beyond
more profitable Canadian companies. Our economy becomes more
attractive to investment, more resilient during economic downturns
and more buoyant during strong economic performance.
All of our opportunities in this new normal are framed by
an assumption of a fair, consistent regulatory environment,
one that avoids new and unnecessary costs to taxpayers, facilitates
the flow of capital and goods and allows the private sector
to remain responsive to client needs and market changes. My
industry is in the throes of regulatory change. It is critical
that we ensure a stable financial services system but also
one that encourages innovation and has the appetite to take
risk. Finding that right balance is essential to our ability
to facilitate economic growth.
Leverage Demographic Change
Just as productivity is a tremendous opportunity in our new
economic reality, changing demographics in Canada, namely
an aging population and a more diverse population should be
an ongoing part of our strategic decisions. Diversity is another
of Canada's great competitive advantages and leveraging our
diversity will have huge payback.
You may recall the Statistics Canada headlines earlier this
year with the news that by 2030, immigrants will be our main
source of population growth, a critical ingredient for economic
growth. One in five Canadians will be a visible minority,
and in Ontario, that percentage will be even higher.
Businesses that take strategic advantage of this pool of
talent will see their productivity improve. RBC's markets
are changing, and we understand that to best serve our markets,
we must hire the market.
We've found that one of the easiest investments in improving
productivity and increasing our strategic options is to ensure
that our hiring processes and policies access and welcome
skilled immigrants. For example, if your plan is to reach
out to economic giants like China and India, immigrants bring
the language and cultural skills, knowledge, and networks
you need to do this.
That's the business rationale. From an economic perspective,
if Canada is to improve its standard of living, we must do
more to become the destination of choice for skilled immigrants
and then to hire them for jobs appropriate to their skills.
It will be an engine of growth.
Cities need this influx of immigrants: after 2015, almost
one in four people will be senior citizens, and immigrants
will be pivotal to sustaining the tax base, supporting our
health care system, building businesses and contributing to
Canada's productivity and intellectual capital.
I see first hand the talent that cultural diversity brings
to businesses and cities, in my role as CEO of one of Canada's
major employers, in my role as the co-chair of The Toronto
Region Immigrant Employment Council and as a citizen of Canada's
most culturally diverse city, where nearly half (almost 47%)
of Toronto's population comprises visible minorities.
There is going to be a lot of competition by provincial and
municipal governments for new Canadians, their talent, and
their wallets in the years ahead. Of course, London is already
acting: the London-Middlesex Immigrant Employment Council
is proactively working to attract international talent to
this region. In fact, from its beginnings with 15 business
leaders in 2008, the Council now has over 150 employers.
RBC was pleased to play a founding role on the Council and
I applaud all of the council members, including Gus Kotsiomitis
(Kochi o meat ez), our Vice President
for our Commercial Banking Team and also an executive on the
Board of your local Chamber of Commerce.
As visible minorities become a larger percentage of our population,
so too will senior citizens. The dependency ratio, which is
the number of working people per retired person, is moving
from 6 to 1 to 3 to 1 over the next twenty years... so it's
definitely a major shift.
But there are also benefits that some cities and regions
will capitalize on: the creation of retirement communities,
retirement planning services, health and wellness services,
elder travel and significant community and philanthropic opportunities,
as boomers consider their legacy.
I would observe that London seems well placed to seize these
opportunities, having been recognized as the third highest
retirement spot in North America, outpaced only by Victoria
and Boulder Colorado.
From participation in the global economy to tackling the
implications in consumer sentiment and demographics, London
is well positioned to respond to the new normal.
The city is geographically situated for growth and Just in
Time inventory strategies: one hour away from the US border;
excellent transportation infrastructure across rail, highway
and international air, and an opportunity to build a strategic
partnership with an international port in Sarnia.
London has exceptional post secondary educational resources,
and world class health services. It has an abundance of top-notch
institutions which translate into outstanding strategic assets
for the region: the University of Western Ontario, Fanshawe
College, Robarts Research Institute, Lawson Health Research
Institute, and the National Research Council of Canada.
These institutions lay an excellent foundation for emerging
sectors in the London area economy such as health sciences,
green tech and information technology.
London has so many of the attributes that comprise a resilient,
successful city, one that can weather hard economic times
and soar during prosperous times.
This event today, Economic Outlook 2010, is the product of
many very capable people joined together in the common cause
of making the London area stronger and more vibrant than ever
It is a real honour - for me and for RBC -- to be included
in this discussion.
Today's global economy faces many challenges and many Canadians
and businesses have had to deal with the fallout of the economic
crisis that was not their making. But through adversity lies
opportunity and Canada, Ontario and London have the fundamental
strength that provides for great prospects. We will have to
adjust to a new normal, but our fundamentals and flexibility
give us a tremendous competitive advantage. Hopefully, we
can rise to the occasion.
Thank you for including me in today's event and I hope we
have many more opportunities to share insights, community-build,
do business and face the future full on together.