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Economic and Financial Outlook

Monetary Policies May Start Diverging Worldwide

May 16, 2024
Jimmy Jean • Randall Bartlett • Benoit P. Durocher • Royce Mendes • Hélène Bégin • Tiago Figueiredo
Francis Généreux • Lorenzo Tessier-Moreau • Hendrix Vachon


  • Global economic growth continues to show signs of improvement. After struggling in the second half of 2023, real GDP picked back up in the eurozone and UK in Q1 2024. Both PMIs are holding strong, which suggests that we may see additional modest growth in the second quarter. Inflation continues to slow, which means the European Central Bank and the Bank of England could soon begin cutting their key rates. Meanwhile China’s inflation stayed quite low, at just 0.3% in April.
  • In the United States, real GDP slowed in the first quarter of 2024, posting annualized growth of 1.6%. This is its weakest result since early 2022—but it’s hiding solid gains in final domestic demand (+2.8%) and higher real consumption in services. Job creation was also cooler in April than it was in previous months. But inflation remains rather sticky and is prompting the Federal Reserve to be cautious. We now expect the first key rate cuts to occur after the presidential election in November.
  • New economic data released this month in Canada continued to beat expectations, but we still expect more moderate growth in the quarters ahead. Although the labour market rebounded in April, the rate of job creation remains well below the pace suggested by decades-high population growth External link.. Combined with still-falling GDP per capita External link. and softness in per-person retail spending across the provinces External link., this suggests deeper weakness in the Canadian economy than suggested by the headline numbers. That weakness should persist in the coming months as households and businesses increasingly feel the pinch of previous interest rate hikes. Moreover, the federal government’s plan to reduce the temporary resident population External link. over the next two-plus years should hold back the expansion. However, we still expect the Bank of Canada to begin cutting rates given the progress made in containing inflation. More accommodative borrowing conditions should support stronger growth as we approach 2025.
  • Barring an unexpected relapse, the worst seems to be over for Quebec’s economy. Real GDP hit its lowest point in December, falling 1.9% from its peak in February 2023. Based on several recent prints, the Quebec economy is starting to shake the blues. SME and household confidence both ticked up and housing starts and existing home sales have begun an upward trend. However, the job market External link. hasn’t turned around yet, even if some indicators seem to be stabilizing. Employment is seesawing, the unemployment rate is holding near 5% and average wages are up around 4.5% from the year before. All the same, the 6.3% year-over-year change in hours worked in April, combined with recent improvements in the Desjardins Leading Index External link., suggest there are sunnier days ahead for Quebec’s economy. The real recovery should begin in the second half of 2024, after the Bank of Canada begins cutting its key rates.

Risks Inherent in Our Scenarios

Inflation has moderated, though it remains above target in most countries and other inflationary shocks aren’t out of the question. The odds of another interest rate hike are low, but rates could remain at their current level for some time if inflation fails to settle down. There’s also a great deal of uncertainty surrounding the lagged effect of higher interest rates on economic growth. As mortgages continue to be renewed at higher rates, many Canadian borrowers could feel the squeeze. Tenants are also feeling growing pressure. Higher unemployment could also lead to challenges for the housing market and credit in general. The US presidential election in November could be an inflection point that adds even more uncertainty. Fiscal deterioration in the United States and elsewhere could prompt credit ratings downgrades and possibly push longer-term interest rates higher. Worsening geopolitical tensions could also spell instability for the global economy, financial markets and commodity prices, particularly in the wake of the recent Israel–Iran confrontation, or if the war in Ukraine intensifies again. From a currency perspective, if the global economy falls off a cliff, many investors may park their assets in US dollars, sending the greenback soaring. Further widening of interest rate spreads with the United States would have the same effect. Rapidly cheapening currencies would in turn have a destabilizing effect for many economies.

Financial Forecast

In the United States, bond yields slowed their upward trajectory after employment came in weaker than expected. But the Federal Reserve (Fed) will need more reassurance before it begins cutting key rates. The presidential election raises further uncertainties. We believe the Fed will wait until the campaign is over before announcing a first rate cut in November, followed by another in December. The Bank of Canada (BoC) doesn’t need to follow the Fed’s lead, but it probably won’t take too much of a head start. We expect the BoC to lower interest rates four times in 2024. The decision is hardly straightforward for June. On one hand, inflation has slowed and other indicators point to some weakness in Canada’s economy, but on the other, job creation was rather robust.


The markets aren’t really pricing in a June rate cut, which is limiting the Canadian dollar’s slide for now. But if our predictions are accurate, the loonie should depreciate further and could approach CA$1.40/US$ over the summer. What’s more, we don’t expect much support from commodity prices in the very short term. Investor risk appetite could also pull back again over the coming months. Many stock valuations remain high, so we don’t anticipate any major gains from the stock market before the end of the year.

Forecast Tables

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.