Canada
The economy continues to show clear signs of weakening. Negative per capita GDP growth for the last six quarters suggests the country is straining under the weight of significantly higher immigration-driven population growth and a sluggish global economy. Sharply higher interest rates and funding costs have had their desired effect, bringing down the raging inflation of 2022 and the first part of 2023 closer to the Bank of Canada’s (BoC) target rate of 2%, but also working to cool the economy. While we anticipate a decreasing chance of a recession in the U.S. in 2024, demand from Canada’s major trading partner is likely to keep the economy above water for the rest of the year. Plus, BoC rate cuts should help boost economic growth and Canadian investment assets in the months ahead.
United States
Growth in the world’s largest economy continues to defy expectations, although it has recently begun to show signs of fatigue, as job growth slows, and interest rates continue to take a bite out of companies’ profitability and hurt business investment. The U.S. Federal Reserve has indicated an increasing willingness to cut rates in light of falling if still “sticky” inflation, and that three cuts are likely during the latter half of the year. With a presidential election looming, market volatility is expected to rise over the coming months, but to-date investment markets have soared in 2024, driven by optimism over the impact to companies’ bottom lines from AI-driven efficiencies, and especially boosting technology shares.
Europe
Europe continues to struggle with sluggish growth, despite the ongoing post-pandemic travel boon to the region. Germany, France and Italy are all mired in recessions (or close). While the European Central Bank is expected to cut interest rates in the months ahead (and Switzerland’s central bank surprised markets with a cut to its rates in March), in the meantime, high interest rates remain in place to be sure that inflation is truly quelled. This further hurts spending and business investment. Despite the negatives, Europe’s macroeconomic signals appear to have stabilized, setting the stage for an upswing in the economy in the second half of the year. The region’s stocks are relatively attractive based on valuations and earnings expectations are reasonable.
Emerging Markets
While growth in India, Latin America and several smaller Asian nations has dampened the fall, aggregate emerging markets (EM) economic growth has been dragged lower by China’s sluggish economy. India is poised to become the world’s third-largest economy by 2026 and is seeing a strong rise in affluence as the country’s economic benefits spread to more and more of the country’s massive population. Asian equities rose in the latest quarter given a solid global economic backdrop and as inflation continued to decline from uncomfortably high levels. Last year was a historic period for emerging-market fixed income: interest rates set by central banks were for the first time on a par with those in developed markets.
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