Découvrez pourquoi les prévisions macroéconomiques sont majoritairement positives dans notre dernière vidéo #MacroMémo pour 2024. Eric Lascelles, notre économiste en chef, passe en revue les dix thèmes clés les plus susceptibles de se manifester au cours de la nouvelle année. Parmi ces thèmes, on peut citer les suivants :
Tous ces sujets et plus encore sont abordés dans la dernière vidéo #MacroMémo. (Durée : 13,5 minutes)
Transcription
(en anglais seulement)
00:00:05:06 - 00:00:25:11
Hello and welcome to our latest video #MacroMemo. The plan this time – given this is the last of these at the end of 2024 and looking forward into 2025 – is just to identify some key macroeconomic themes for 2025. I'll admit there aren't any real shockers here. Nothing too, too juicy, but still useful to lay out our key thoughts. So that's what I'll plan to do.
00:00:25:13 - 00:00:45:05
Let's start with the first theme, which is sustained economic growth. This is hardly shocking. In fact, it's the default state for economies to grow. So nothing too radical there. But after years of recession fears and concerns, I think it's worth laying out the fact that we do expect further moderate economic growth in 2025.
00:00:45:05 - 00:01:02:23
In terms of the motivations for that, in addition to growth being the default state and the natural inclination for economies, we are seeing I would say pretty decent momentum for the economy from late 2024 and the hand-off into 2025. Also, just more fundamentally, of course, we've been through a period of very high interest rates.
00:01:02:23 - 00:01:21:08
Those interest rates are at least partially starting to come off, particularly at the short end of the curve. And that does provide something of a tailwind or at least starts to remove a headwind. So you can speak with some confidence about economic growth in 2025. So that was theme one.
Theme two: U.S. exceptionalism in an economic context to persist.
00:01:21:08 - 00:01:42:11
So the U.S. economy has outperformed most of its peers over the last couple of years, in 2023 and 2024 certainly, notably. We think that outperformance can persist in 2025. It might be a little bit smaller, but we do believe it can persist. That's in part because that's what the U.S. has managed in recent years.
00:01:42:11 - 00:02:03:11
That's been the trend. It's in part because we do think the U.S. is capable of generating superior productivity growth on a sustained basis to many of its peers. That's the foundation on which economic growth is built. And then just in a more, short-term, cyclical context, we see, of course, a new president coming in, a new administration beginning before too long.
00:02:03:11 - 00:02:28:22
And we've estimated very loosely that the set of policies to be introduced could be economically stimulative to the U.S. advantage and a little bit to the rest of the world's disadvantage – both in attracting foreign capital into the U.S. and also, of course, with the threat of tariffs perhaps being more negative for the rest of the world. Then again, we see pretty good momentum coming from late 2024 into 2025, the U.S. economy clearly moving the fastest of the bunch right now.
00:02:28:22 - 00:02:47:22
And so we think that there is a fighting chance that trend persists into 2025.
Theme three: animal spirits unleashed. I can say, as an economist, I spend most of my time looking at fairly hard numbers and thinking about rate cuts and tax cuts and trying to quantify these things and forecasting growth and other economic variables on that basis.
00:02:47:22 - 00:03:09:01
I think that's still useful and relevant. We're still certainly doing that. But I will say it does feel as though there's a greater psychological or emotional component at play today than usual. And so, as Keynes would call it, animal spirits were quite subdued. In recent years, we had a lot of pessimism, in particular coming out of American small businesses, but not exclusive to that group.
00:03:09:03 - 00:03:29:05
We've seen quite a remarkable leap higher in confidence and expectation since the U.S. election. I would argue it’s above and beyond what you could justify just on the basis of assumptions about specific economic policies. And so there is seemingly an emotional component to this and that needs to be factored in. Whether it's entirely rational or not, you have more optimistic small businesses.
00:03:29:05 - 00:03:52:10
They've gone from being in the realm of the most pessimistic in a decade to the most optimistic that we've seen since 2021. Businesses are feeling better, they are in a better position to invest, to hire and to spend more as well. So that provides a certain economic tailwind and I suppose circles back around to the U.S. exceptionalism story, since this phenomenon is disproportionately a U.S. story.
00:03:52:12 - 00:04:12:07
Theme four is inflation. Inflation is getting trickier from here. So when push comes to shove, we are still forecasting that inflation can fall a bit further in the year ahead. That's been the dominant theme over the last few years for sure. However it is trickier from here. And so we are looking for more incremental improvements in inflation.
00:04:12:09 - 00:04:29:05
In the U.S. context, we may not see a lot of progress at all. And so, let's be aware that for the U.S., the recent trend hasn't been all that friendly. The last few months have been a bit hotter than desired. If anything it’s accelerating slightly. The U.S. economy is seemingly on a faster trajectory, which complicates inflation.
00:04:29:07 - 00:04:52:12
Wage growth is down, but it's stopped decelerating. Corporate pricing plans also down from their worst a few years ago, but inching a little bit higher again. And of course, tariffs set to be potentially inflationary. And so we have upgraded our U.S. inflation forecast. It is still set for a slight improvement from 2024 to 2025. But not a lot and not with a high level of conviction.
00:04:52:14 - 00:05:10:16
Other countries are in a better position to see their inflation come down a little bit, but we're expecting only modest progress there as well. So sort of a trickier path forward for inflation.
Theme five, a natural extension from the prior theme, is on the rate cut front. We have got rate cuts. We are anticipating rate cuts moving forward.
00:05:10:18 - 00:05:32:10
But it does certainly look as though those rate cuts could come much more slowly in 2025 than in 2024. And, at a minimum, we can talk about some gaps opening up between cuts. So not rate cuts certainly at every opportunity.
You know, given that we've had economic growth that's been sustained, U.S. growth in fact being quite good, inflation coming down a little bit less willingly . . .
00:05:32:10 - 00:05:52:16
That is a more difficult picture for central banks and makes them slightly less able to cut rates. So yes, we do expect rate cuts. We're only expecting a few, 2 or 3 out of the U.S. Federal Reserve in 2025.
Bank of Canada has been cutting with great enthusiasm. It can still cut. But again, the amount of cutting next year likely to be significantly less than this year.
00:05:52:16 - 00:06:08:15
We're assuming an end point in the U.S. of a policy rate that is somewhere in the high threes. In Canada, in the high twos. There’s room for that to change. And expectations have shifted repeatedly and so this is not the final word on the subject. But central banks will be proceeding more gingerly, I think, in 2025.
00:06:08:17 - 00:06:25:21
Do keep in mind, though, that of course, interest rates and rate cuts and rate hikes operate with a lag. And so the fact that there was such a lot of cutting over the second half of 2024 is still a pretty good economic tailwind, even if we're not getting as much cutting in 2025.
Theme six is just thinking about risks.
00:06:25:21 - 00:06:47:21
The key economic risk in recent years was, of course, the risk of recession. That risk hasn't vanished. We still think there is that risk. It always exists to one degree or another. We think, though, that risk has continued to decline. And it was declining pretty notably across the entirety of 2024. In fact, we would pencil that in at around a 15% chance for the U.S. over the next 12 months right now.
00:06:47:21 - 00:07:06:06
So pretty low recession risk now. That isn't to say there are no risks though. And in fact, we would argue the biggest risk to the economy now is probably not a recession, though that still exists. The bigger risk is actually in the opposite direction, which would be a ‘no landing’ scenario. So not the ‘soft landing,’ which is still our base case, which involves a bit less growth and a bit less inflation, some rate cuts and so on.
00:07:06:06 - 00:07:25:12
‘No landing’ would just be that the economy continues to run hot. Inflation doesn't come down. Central banks can't cut or even in an extreme scenario have to hike. And again, that's not our base case scenario either. But we think there's maybe a 25% chance of that versus perhaps a 15% chance of recession.
00:07:25:12 - 00:07:40:23
So to the extent there are risks, it's actually a little bit more of the over-heating risk as opposed to the under-heating risk that dominates right now.
Theme seven: tariffs. You could argue maybe the theme here should just be American public policy. To the extent there are all sorts of uncertainties and swirling plans.
00:07:41:03 - 00:08:03:15
But I think tariffs rightly capture the attention here. And for the moment, I think we're all getting nervous as we hear a lot of talk about tariffs and in some cases bigger tariffs than had even been proposed on the campaign trail. Realistically, as we approach January 20th and the Trump inauguration, we're going to be getting more nervous as opposed to less nervous, and we're going to be hearing more about these things as opposed to less about them.
00:08:03:17 - 00:08:27:21
Logically, it still stands to reason that tariffs should be viewed as a negotiating strategy. And to the extent that countries can comply with U.S. demands or offer something to the U.S. in exchange, they can avoid the brunt of those tariffs. I think that is still the right way to think about this. We are budgeting for a smaller set of tariffs to ultimately be applied, and we do expect some economic damage, from that.
00:08:27:21 - 00:08:45:05
But it is hard to say with precision exactly what we get here. And as I said, there have been some surprises since the election in terms of the rhetoric being particularly negative toward Mexico and Canada, and maybe less so towards the likes of China. We are again budgeting for slower growth due to tariffs. But there is a risk here.
00:08:45:05 - 00:09:05:11
And the risk is that the tariffs could be bigger, or they could just be large, temporarily and do some short-term damage that we need to grapple with. So that certainly will be a key thing to track for 2025.
Theme eight: Chinese resilience. China has certainly struggled economically. I think that's well appreciated and we're not in any way budgeting for a return to the glory days of old.
00:09:05:13 - 00:09:22:21
But we do think that maybe the degree of pessimism about China is a bit overblown. I'll just give you two reasons why. One is just that China is less exposed to tariffs than conventionally imagined. When you look at Chinese economic output, only 2.5% of what China makes gets sold directly into the U.S.
00:09:22:21 - 00:09:46:02
And so, tariffs could be significant against China. They could slow China. But it's not as direct an exposure as you think. China has a much stronger trade connection with the rest of Asia, with Europe. China also has very considerable trade connections with South America and Africa and Oceana, and other countries. And so we think that the exposure there is less than people fear and that we do believe that there's room for quite a bit of Chinese stimulus still.
00:09:46:02 - 00:10:03:00
Once there's greater clarity in what the U.S. has planned from a tariff perspective for China, I think that would be a logical time to do some of those things. Chinese policymakers have been communicating a desire to deliver more monetary stimulus to support consumption. I wouldn't be surprised if the currency was allowed to weaken as well.
00:10:03:00 - 00:10:21:06
So a Chinese economy that can stabilize and grow, as opposed to continue to decelerate from here.
We're getting towards the end here. Did I mention there are 10 themes?
Theme nine: geopolitics, which is geopolitics in focus. That was also the story for 2024.
00:10:21:06 - 00:10:44:05
We've had considerable Middle East conflict and a war in Ukraine and conflicts between China and the West. Broadly, we are expecting those things to continue. So that is a very familiar theme then in 2025. But there is a scenario in which Middle East conflict rises, not falls. That has been the trend, so far. The war in Ukraine has been intensifying.
00:10:44:05 - 00:11:07:08
Now, that could be temporary in the lead up to January 20th (Trump’s inauguration day). There could be a ceasefire after. It's possible. But for the moment, we are seeing an intensification, not an easing of that war and some big question marks as to whether Europe will step in to fund Ukraine if the U.S. steps back.
It's worth thinking about tariffs as well in the context of them being a form of geopolitical conflict, albeit in an economic sphere as opposed to a military sphere.
00:11:07:08 - 00:11:25:06
And so I will admit, what's interesting in all of that is that we haven't actually seen in the last year a big influence of those geopolitical events on the economy and markets. And so it's not at all certain that the continued geopolitical uncertainty in 2025 dominates the economy and markets. But again, it's another one of those themes where the risk exists.
00:11:25:06 - 00:11:45:12
It is possible. There are scenarios in which the price of oil is higher.
And so on that I'll finish here with the last theme. So this is a Canada specific one.
Theme ten: It's really just a choppy Canadian economy. To begin with, the Canadian economy has been underperforming the U.S. That's been true for almost everyone, but it's been maybe particularly notable in Canada because historically the two economies have been very tied at the hip.
00:11:45:12 - 00:12:05:21
So it's come from a starting point of a fairly challenged position. And then some just some big variables set to push in different directions. You have immigration set to come off quite sharply based on government rule changes, which could subtract quite a lot of economic growth. Everyone is crossing their fingers that productivity growth, which has been negative for a number of years, rebounds.
00:12:05:21 - 00:12:28:10
Perhaps it should rebound in part because some damage was done by the unusual rate of immigration in recent years. But it is a little bit of wishful thinking to believe that productivity can snap back at the exact same magnitude and the exact same time as immigration goes away. There is very much the risk of some negative quarters for Canada, some holes and some choppiness. Simultaneously, of course, you've got tariffs.
00:12:28:12 - 00:12:46:08
And so the threat therein, which is particularly acute for Canada given tight economic connections and an election wild card, in the sense that there will be an election in Canada in 2025. We don't know if it's going to be the spring or the fall, or maybe, given some recent events, even earlier in 2025, but it will come along somewhere there.
00:12:46:10 - 00:13:04:16
Currently, polls would suggest a conservative government, a perhaps more business-friendly, productivity-friendly policy mix based on what we've seen. But that’s maybe prejudging. We'll have to see what all the parties propose when that comes along. But the point being that there are some wild cards and some sources of uncertainty for Canada as well. We think it could be a fairly bumpy affair.
00:13:04:16 - 00:13:18:09
At the end of the day, we're looking for growth. We think growth can accelerate likely toward the end of the year. But it could be very, very choppy indeed over the first half of the year.
I'll finish there and so I'll say Happy New Year to everyone. This is our last recording of the year. Thanks so much for tuning in. I hope you found this useful. And please consider tuning in again next time.