What to expect from the economy in 2024 with Mastercard’s Michelle Meyer – CB

Higher interest rates and inflation have become a reality for Canadians. Will 2024 bring relief? And how will the still-uncertain outlook affect economic growth and consumer spending this year? Michelle Meyer, chief economist at Mastercard and director of the Mastercard Economics Institute, discusses her outlook for the Canadian and global economies in 2024 and how consumers may face difficult decisions, but not without some signs of positive changes on the horizon.

What is the global economic context for 2024?

For the global economy, 2024 should be marked by an easing of inflationary pressures in most economies and real GDP growth quite comparable to what we experienced in 2023. The Mastercard Institute of Economics expects global real GDP growth of 2 .9% this year, compared to about 3%. % by 2023. The global economy is still expanding, particularly due to lower inflationary pressure in most developed countries.

Will this reduction in inflation be accompanied by a reduction in interest rates?

Precisely. We believe central banks are at maximum rates, for the most part, and expect a broad easing of monetary policy in the second half of the year. I will emphasize that it will really be a normalization of politics. This is not a community of central banks that is cutting rates because the economy has weakened substantially, but because they have made progress on their inflation mandate. As the broader economy rebalances, this could lead to a partial “normalization” of monetary policy.

Where do you think rates will level off?

That’s up for debate, but central banks tell us they’re hesitant to return to the lower bounds they had in the previous cycle. Rate trends will differ between different economies, but it looks like we will be trading at higher rates for longer than in the post-financial crisis period of 2010 to 2019, which may end up being seen as a very unusual time in the world. cycle.

Let’s talk about Canada in particular. What do you think will happen to the Canadian economy in 2024?

Canada has faced a number of challenges, including large debt loads and high interest rates, which have been headwinds for the economy. But tailwinds come from positive workforce dynamics (partly from immigration) and also from offshoring. While there are some cyclical challenges due to debt overhang, there are also some positive structural forces at work in Canada. We expect real GDP growth this year of 0.8%, following an estimated real GDP growth of 1.1% in 2023.

You mentioned the positive workforce dynamics. Can you explain a little?

I would argue that immigration policy has supported workforce expansion and new Canadians tend to have high participation rates. I think that could be a positive source of growth. Another one that’s really important is the push toward more diversified supply chains, where production moves from China or the United States to Canada or Mexico. When analyzing the trade balances between the United States and its main trading partners, Mexico and Canada have definitely rebounded in terms of trade volume.

What are some of the factors that will affect consumer spending in 2024?

From a global perspective, this will be a year of trade-offs for consumers. Consumers will have to make decisions about how to spend and how to invest. As the business cycle matures, one of the dynamics that will influence those decisions will be relative prices. The ups and downs of inflation have not been uniform. In some categories that had the largest increases, such as durable goods, affordability has now improved. In other categories, particularly services, inflation took longer to take hold and we continue to see rising prices. I think the average consumer will have to think about how much price increases they can tolerate for certain categories and where they might be least willing to deploy their purchasing power.

Do those themes also resonate for Canadian consumers?

I think so, but I would say there are a couple of distinct factors that influence Canadian consumers. One is that, although food inflation has gone down quite a bit in the United States, it is still somewhat high in Canada, and food, along with gasoline, is one of the things that impacts inflation expectations the most. Additionally, the Canadian real estate market is under more pressure than that of the United States. Home prices relative to incomes have been rising for a long time and we have seen growth in mortgage debt. The interest rate increases were very significant for Canadian households due to the more immediate pass-through of variable rate mortgages. Therefore, there could be continued pressure on housing-related spending.

What are the risks to the outlook?

Inflation dynamics are something to pay attention to. We all assume that the slowdown in inflation we saw in 2023 can continue in 2024 without having to compromise the labor market too much. But if inflation remains higher than expected, that becomes a factor for central banks and the resulting economy. Furthermore, while we can’t really predict external shocks, we can pay attention to whether economies are prepared to withstand them. On the positive side, monetary authorities now at least have room to respond should a crisis occur.

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