The Federal Reserve is on its way to accomplishing quite a feat. Despite inflation, severe monetary tightening and the inversion of the yield curve, the monetary authorities will achieve a soft landing for the economy and avoid recession, Desjardins Group economists now predict.
Thus, GDP growth will remain positive throughout 2024. These forecasts, revised in October, now establish real growth in the US economy at 2.4% in 2023 and 1.5% in 2024.
The famous scenario of a soft landing for the American economy is based on an aggressive rate hike by the Federal Reserve in order to reduce inflation to 2% while avoiding pushing the economy into recession.
“It seems to be this unicorn scenario that is coming true,” said Desjardins senior economist Benoit P. Durocher on Tuesday noon. He was invited to the podium of the Urban Development Institute of Quebec. In October, we revised our forecasts by sending the message that we could well avoid recession in the American economy. It could also be one of the only economies to avoid recession in the coming quarters. »
Canada less fortunate
Unfortunately, Canada fares less well. The Desjardins Movement predicts that the country and Quebec will fall into recession somewhere between the end of 2023 and the beginning of 2024. But here, nothing very painful yet.
“We see the trend slowing down quarter after quarter as the restrictive effects of rate increases are felt,” explains Mr. Durocher. We are forecasting at the end of 2023, at the beginning of 2024, both in Quebec and in Canada, our famous two consecutive quarters of decline in real GDP, the definition of a technical recession. »
I insist, it’s really a small drop. We are talking about a very mild and very short recession.
Benoit P. Durocher, director and senior economist at Desjardins
Desjardins anticipates Canadian GDP growth of 1.1% for 2023 and 0.1% in 2024. In Quebec, it anticipates growth of 0.3% in 2023 and 0% in 2024. Mr. Durocher sees inflation return to 2% by the end of 2024.
“The good news is that the Bank of Canada could begin to gradually lower its interest rates. In our projections, we anticipate gradual reductions starting in spring 2024.” Mr. Durocher expects key rates to converge towards a range of 2 to 3%.