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David "Dave" McKay, president and chief executive officer of Royal Bank of Canada (RBC), speaks during an interview at the company's offices in Toronto, Ontario, Canada, on Thursday, Dec. 18, 2014.Kevin Van Paassen/Bloomberg

The chief executive of Canada's biggest bank believes plummeting oil prices and triple-digit market swings are no cause for panic.

Despite the current turmoil, Dave McKay is optimistic about the country's growth potential.

As 2014 comes to a close, there are concerns that a flurry of global shocks, both at home and abroad, will derail North America's economic recovery. Royal Bank of Canada's CEO, however, swears by his rosy outlook and what it means for his bank's profit, something that has put him at odds with some peers .

Mr. McKay believes RBC's earnings per share can still grow by 7 per cent next year, while other lenders, such as Toronto-Dominion Bank, have trimmed their short-term profit forecasts.

The root of this optimism: The reawakening of the U.S. consumer.

"If you look at the driver of global growth, and North American growth, for many decades, it's been the U.S. consumer," Mr. McKay said in an interview. Historically, consumer spending contributed roughly 60 per cent of U.S. gross domestic product. Because the country is the world's largest economy, this spending has an outsized effect on global GDP.

For the first few years after the financial crisis, U.S. consumers were sleepy, burdened by debt and unable to find jobs. Those weights are now lifting, and that means Canada's biggest trading partner is coming back to life.

"There are a lot of things in the world that create uncertainty," Mr. McKay said, citing Russia's political and economic unrest and choppy oil markets as two examples. But U.S. consumers are showing signs of strength, and that "should be cause for optimism."

One reason this fundamental is too often overlooked: Market fluctuations steal media headlines and the public's attention. Yet Mr. McKay argued trading strategies that seek short-term gains often drive these swings, masking deeper forces. "Capital has flowed to investment ideas and strategies that prey on volatility," he said.

He remains realistic: There will be hiccups, such as the recent plunge in oil prices. But he noted the continent's economic rebound has shown resilience over the past five years. "I see bumps, but better days ahead," he said.

He also isn't overly worried about Canada's housing market. While the Bank of Canada recently announced some regional markets could be as much as 30 per cent overpriced, RBC's head believes a 10- to 15-per-cent correction is more likely as interest rates rise – and even then, he doesn't worry about the ripple effects.

"The U.S. got into trouble because the [housing] demand wasn't real; it was artificially created," he said, adding that people who had no business buying and investing in homes starting doing so. That scenario isn't as nearly as applicable to Canada.

"I really look at the fundamentals – supply and demand," he said. "I think we've seen pretty disciplined supply management" for single family homes. "If there is a price correction, it's not like there are 100,000 rental properties out there that are vacant."

Many Canadians who currently own or rent will stay put in any downturn because "people have to live somewhere."

As the economic recovery drags on, RBC is positioning itself to profit off changing consumer preferences. Lending has driven growth for many years, but Mr. McKay and his team are betting that their savings and investment business will be a key earnings driver going forward.

He cited two demographics that have already shown changing needs.

Because they are already in retirement, or nearing retirement age, many baby boomers are scaling back, no longer buying multiple cars and freeing up cash by downsizing their homes. That creates a chunk of change that suddenly needs to be managed.

Millennials are also demonstrating a consumption philosophy that differs wildly from their parents'. For instance, many young Canadians would rather rent cars or use car-sharing services such as ZipCar. Because they aren't sinking a lot of cash into these expensive purchases, they have more money to save.

However, Mr. McKay isn't totally writing off the credit boom. He just expects it to slow.

"We're still going to have growth in credit; it's not going away [because] we still have growth in the population," Mr. McKay said. "But it will be 3 to 5 per cent." Gone are the days "when the boomers expanded their lifestyles by taking on debt."

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:20pm EDT.

SymbolName% changeLast
RY-N
Royal Bank of Canada
-0.07%99.27
RY-T
Royal Bank of Canada
-0.22%134.34

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