A boost in exports
The much-telegraphed recession has not materialized in the United States, whose economy has shown surprising resilience. “If we look at the latest figures, it is better than what the most optimistic forecasters expected,” said Jimmy Jean. Desjardins now expects 2% growth in the American economy this year. Its economist believes that this strength played a role in the rebound in economic activity in Canada in the fourth quarter, by supporting exports of goods. Canada’s gross domestic product would have increased by 1.2% in the last quarter of 2023, according to preliminary estimates from Statistics Canada.
Protectionism on both sides
Whatever the result of the American presidential election next November, Canada will not escape American protectionism, according to Desjardins. Republicans and Democrats alike should continue to take a hard line against China, predicts Jimmy Jean. Towards Canada, “the Republican approach would be more confrontational”, according to him. We should expect, for example, that a Republican administration would want to renegotiate the Canada–United States–Mexico Free Trade Agreement, which is due for review in 2025. A Biden administration, with the Inflation Reduction Act, would probably be more accommodating to Canada, which has critical minerals essential to carrying out this program.
Six interest rate cuts
The Bank of Canada is three-quarters of the way back to the 2% inflation target, but what remains to be done could take longer. Despite everything, Desjardins’ chief economist believes that the Canadian economy has slowed enough to allow the central bank to begin reducing its key rate this spring. Desjardins forecasts six rate cuts this year and five more in 2025, which would bring the key rate to 2.5% at the end of next year. “By starting soon and moving gradually, the Bank of Canada would avoid worsening investment delays,” he said. All central banks, such as the Federal Reserve and the European Central Bank, are at the same point, but the Bank of Canada should start lowering rates before the others, according to him.
Employment: less acute shortages
The Quebec economy created 67,000 jobs in 2023, an insufficient rate to absorb the increase in the working age population. Despite this increase, 32% of Quebec businesses believe that the lack of labor is their main concern, compared to 26% in the rest of Canada, according to the Institut du Québec. The scarcity of labor has evolved to be concentrated in the health sector and the manufacturing sector, notes its general director Emna Braham, while it was more generalized in accommodation, catering and the trade of detail a year ago.
Investment remains flat
Despite the scarcity of labor, Quebec companies do not plan to invest more, notes Emna Braham, director of the Institut du Québec. Business investment intentions are even declining, which can currently be explained by high borrowing costs. But low investment has been a problem for a long time, and companies are still hesitant to take steps to overcome their labor problems. “The demographic challenge is here to stay, and productivity is lower in Quebec than in Canada,” she emphasizes.
The OECD is more optimistic
More optimistic, the Organization for Economic Co-operation and Development raises its forecast for growth of the global economy from 2.7% to 2.9% for 2024. In its quarterly report, the OECD highlights the better than expected performance of the American economy, whose expected growth is 2.1% rather than 1.5% in its previous forecasts. In Europe, growth will be slowed by the difficulties of the two main economies of the euro zone, France and Germany, whose respective growth of 0.6% and 0.3%, although increased, remains weak. As for inflation, it should slow down in most G20 countries to an average of 2.6%, subject to a worsening of conflicts in the Red Sea and the Middle East which could revive inflation and harm to growth.
The Press and Agence France-Presse