The Federal Reserve is well on its way to achieving quite a feat. Desjardins Group economists now predict that despite inflation, severe monetary tightening and an inversion of the yield curve, monetary authorities will achieve a soft landing for the economy and avoid a recession.
Hence, GDP growth will remain positive throughout 2024. These forecasts, revised in October, now peg real growth in the US economy at 2.4% in 2023 and 1.5% in 2024.
A popular scenario of a soft landing for the American economy relies on aggressive rate hikes by the Federal Reserve to reduce inflation to 2% without pushing the economy into recession.
“It looks like this unicorn scenario is coming true,” said Desjardins senior economist Benoit P. Durocher said Tuesday afternoon. He was invited to the podium of the Urban Development Institute of Quebec. In October, we revised our forecasts, sending a message that the US economy could avoid a recession. It is also one of the only economies to avoid recession in the coming quarters. »
Canada was less fortunate
Unfortunately, Canada has low prices. Desjardins Movement predicts that the country and Quebec will enter a recession somewhere between the end of 2023 and the beginning of 2024. But here, there is nothing more painful.
“We are seeing a slowing trend quarter after quarter as we feel the restrictive effects of rate hikes,” Mr. Durocher explained. We have our famous two-quarter decline in real GDP in late 2023, early 2024, in Quebec and Canada, the definition of a technical recession. »
I emphasize that this is indeed a small drop. We are talking about a very mild and very low recession.
Benoit P. Durocher, Director and Senior Economist at Desjardins
Desjardins forecasts Canadian GDP growth of 1.1% in 2023 and 0.1% in 2024. In Quebec, growth is forecast at 0.3% in 2023 and 0% in 2024. Mr Durocher expects inflation to reach 2% by the end of 2024.
“The good news is that the Bank of Canada may start gradually reducing its interest rates. In our forecasts, we anticipate gradual reductions starting in the spring of 2024.” Mr. Durocher expects key rates to converge in the 2 to 3% range.