ECONOMIC SPOTLIGHT // Q4 2024
The global economic outlook for 2025 presents a shift in focus for central banks, particularly in North America, as inflationary pressures subside. With Canada successfully bringing inflation under control, the Bank of Canada is poised to prioritize growth, addressing economic slack and aiming for full employment. In the U.S., inflation benchmarks are showing promising trends, enabling the Federal Reserve to recalibrate interest rates to safeguard growth. These adjustments reflect a broader transition from combating inflation to fostering economic stability and expansion.
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In Canada, the Bank of Canada’s core inflation measure, CPI excluding food, energy, and mortgage interest costs, is expected to remain at or below the 2% target, aided by a negative output gap. This economic slack creates room for the central bank to lower interest rates, potentially entering stimulative territory at 2.25%. Meanwhile, the U.S. Federal Reserve is easing rates to neutral levels, projected around 3.5%, as inflationary hotspots like rent and wage pressures begin to cool. However, uncertainties, such as U.S. trade policy shifts under the Trump administration, may influence interest rate paths and economic dynamics on both sides of the border. Globally, growth remains sluggish, with divergent policies across Europe, Japan, and China reflecting varied challenges in labour markets, aging populations, and real estate pressures.
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As central banks pivot toward supporting growth, the economic outlook for 2025 underscores the interplay between interest rate policies, labour market conditions, and global trade uncertainties. In Canada, achieving full employment could drive better-than-expected GDP growth by 2026, supported by productivity gains and a rebound in domestic demand. For the U.S., maintaining a steady growth trajectory will hinge on navigating restrictive immigration policies and cooling productivity trends. Together, these dynamics suggest a cautious but optimistic path forward, with central banks ready to do "whatever it takes" to sustain economic stability.
Stay tuned for updates as we monitor these developments closely.
Source – CIBC Economics*