Are we there yet?

As summer approaches, Canadians can be forgiven for having that familiar road trip refrain in mind: Are we there yet? Over the last few years, we've asked variations of that same question. The COVID-19 pandemic: Can we emerge from lockdown yet? Inflation: Has my grocery bill stopped soaring yet? Growth: Have we hit that recession yet? Monetary policy: Have we started raising (and then cutting) rates yet? The landing: Has the global economy moved past pandemic-induced distortions yet? It’s felt like one long four-year road trip.

Export Development Canada’s spring 2024 Global Economic Outlook forecasts a smooth—if uninspiring—ride through this year, with the global economy expected to grow by just 2.9%. Next year, we expect growth will shift into higher gear, at 3.3%, as lower interest rates and the normalization of activity help leave the post-pandemic economy behind.

Growth in Canada will decelerate in 2024, to just 0.9%, before rising to 1.8% in 2025. The near-term drag is the result of a highly indebted Canadian consumer, whose sizable debt-servicing requirements have led to a focus on savings over spending.

Business investment is also being constrained by elevated interest rates and tighter financing conditions. However, the prospect of interest rate cuts on the horizon has helped boost both consumer and business confidence. This should fuel a gradual increase in spending and investment going forward, giving the economy the momentum needed for a stronger 2025. 

While inflation is falling back to target, price growth remains sticky in certain areas, and the interest rate descent will be gradual. Taken together, all these forces will cause the Canadian dollar to climb slightly, from an average of US$0.74 in 2024 to US$0.78 cents in 2025.

In contrast to Canada, American consumers have worked hard to repair their balance sheets over the last 15 years. A resilient labour market has supported steady growth in wages and employment, generating a spending splurge that’s helped power U.S. outperformance relative to other developed market economies. We anticipate U.S. growth of 2.3% in 2024.

As the U.S. labour market cools, still-elevated prices and interest rates should slow things down. Weaker consumer spending will see broader economic momentum fade heading into 2025, causing growth to ease back to 1.8%. We expect the U.S. Federal Reserve to begin easing interest rates midway through 2024. However, as with the Bank of Canada, the Fed will take a cautious approach to its interest rate U-turn, keeping close watch of volatile inflation gauges.

Weakness in China is expected to continue this year, and linger into the near-term, with growth forecast at 4.7% in 2024 and 4.4% in 2025. Despite fiscal stimulus and modest monetary policy easing, the effects of the country’s property sector slowdown and weak consumer and business confidence will persist. That said, additional rounds of government support should prevent deflationary forces from taking hold.

This modest global demand outlook muddies the path for commodity prices. Reduced Chinese activity will hit metals and minerals pricing, especially for those that experienced production increases in anticipation of a surge in electrification demand. Gold will see stronger pricing this year, as the wave of global elections increases policy uncertainty, before pulling back in 2025. West Texas Intermediate oil prices are expected to average US$77 per barrel in 2024, and fall to an average of US$70 in 2025, as supplies continue to outpace demand growth.

The bottom line?

Our forecast for 2024 calls for lacklustre growth, as consumer spending reaches its limits and businesses retrench. Fiscal policy will be governed primarily by the need to manage widening budget deficits, and only turn supportive for priority areas, or if growth really sputters. Meanwhile, global trade is being hindered by softening demand, ongoing trade disruptions and policy uncertainty. As we look to 2025, a pickup in activity is expected to pull growth back to pre-pandemic levels, bringing with it opportunities for those who’ve prepared for the journey.

This week, a very special thanks to Ross Prusakowski, director of our Economic and Political Intelligence Centre. As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.