Central banks are achieving a successful soft landing strategy after concerning periods of high inflation following the coronavirus pandemic, said Douglas Porter, chief economist and managing director at BMO Financial Group, during the keynote session at the Canadian Investment Review’s 2024 Endowment & Foundation Investment Forum in June.
Inflation is receding from dangerous highs in the U.S. and Canada — which reached nine per cent and eight per cent, respectively, in the summer of 2022 — to more manageable levels, something that had never happened in the post-war era without a recession.
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“It might not exactly be the softest of landings but when we think back and put it in a bigger context . . . I would call that a pretty good landing that the central banks have just pulled off.”
Despite successfully maneuvering intense volatility from high inflation, he said the markets are still seeing some of the highest long-term interest rates in more than a decade, noting the era of “higher for longer” is sticking around.
Global economies are facing modest economic growth of 3.2 per cent in both 2024 and 2025, with India and China leading the pack. While Canada and the U.S. are expected to post below-average growth over the next two years, it doesn’t indicate a looming recession.
“Given all the challenges that the global economy is dealing with, a couple of wars, still relatively high inflation and the impact of the last rate hikes, I would say this is a surprisingly resilient performance that we’re seeing.”
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Moving forward, Porter’s expectations for the Canadian economy are optimistic, despite growing only one per cent over the past year, compounded with a significant annual population growth of three per cent. Comparing the U.S. and Canada, he said the difference lies in consumer spending and saving, noting Canadians are saddled with debt and that the two economies have reversed their roles regarding household debt over the last 15 years. Canadian household debt is now comparable to levels seen in Scandinavian countries, the U.K. and Australia, he added.
The Bank of Canada is holding back on more interest rate cuts due to a cautious approach and a lack of cuts from the U.S. Federal Reserve, said Porter. “We do see the Canadian economy picking itself up over the next year, doing a bit better and probably growing about inline with the U.S. economy as we get out in 2025.”
Read more coverage of the 2024 Endowment & Foundation Investment Forum.