Global Economic Outlook: A soft landing in sight

After a turbulent ride across a series of post-pandemic distortions and offsetting measures, the global economy is managing a smooth descent toward normalization. With the throttle scaled back, flaps deployed and landing gear about to be lowered, final approach adjustments are underway.

Our fall Global Economic Outlook (GEO) forecasts global growth of 3.2% this year, up from 3.1% in our spring edition. For 2025, EDC Economics expects steady growth at 3.3%, slightly down from the previous forecast of 3.5%.

Canada’s outlook follows a similar flight path to that of the global economy, but at a slightly reduced altitude. We anticipate the Canadian economy will grow by just 1.1% this year, increasing to 1.6% in 2025.

Growth is constrained by high consumer debt and a weakening labour market, which hasn’t kept pace with new labour force entrants. Consequently, the unemployment gauge has ticked up by 1.5 percentage points since mid-2022, reaching 6.6%—the highest since May 2017 (excluding the pandemic years). At the same time, Canadians continue to save, with nearly $500 billion in savings, showing little sign of converting these into consumption soon.

The weaker labour market and easing pricing pressures gave the Bank of Canada clearance to make a heading adjustment before the rest of the fleet, beginning its rate cut cycle in June. With inflation falling to 2% in August, and forecasted to average 2.2% in 2025, we expect the central bank to continue on this steady glide path, landing at a terminal rate of 2.75% by the end of next year. As the U.S. Federal Reserve begins its own rate adjustments, the Canadian dollar is expected to average US$0.73  in 2024 and US$0.74 in 2025.

In the first half of the year, the U.S. economy seemed to be cruising smoothly, unaffected by the turbulence impacting other economies. Job creation continued to hold altitude, consumer spending was flying high, and inflation maintained a steady course to target.

However, the third quarter showed signs of slowing, as the effects of higher interest rates began to impact the real economy. Job growth and real wage growth have decelerated. While companies are hesitant to lay off workers due to post-pandemic hiring challenges, the economy is poised for a slower climb. 

Europe can expect moderate economic growth, with the Zone expanding by 0.8% in 2024 and 1.4% in 2025. In Germany, weak consumer confidence is compounded by a gloomy trade outlook. China’s economic slowdown will impact Germany’s export engine, as the country grapples with cheap imports and ongoing energy security issues, causing business investment to sputter.

Political fragmentation and budgetary constraints across Europe will keep governments grounded, preventing any decisive fiscal thrusts. A recovery in household incomes, a tighter labour market due to a shrinking working-age population, and a rebound in global demand will provide some lift in the latter part of our forecast horizon.

Our outlook for Mexico has pulled back sharply since our last forecast, with growth expected to reach just 1% in 2024, climbing to a modest 1.4% in 2025. The labour market has deteriorated more than anticipated, and government spending—which took off ahead of June’s election—is likely to face fiscal headwinds. More significantly, the incoming Claudia Sheinbaum administration’s policy manoeuvres, particularly the proposed judicial reform, have been poorly received by investors. This has led to sustained financial market volatility, causing private investment to stall.

Despite recent stimulus efforts, the outlook for China remains a drag on the global economy, as weak consumer spending, ongoing overcapacity in the property sector and the looming threat of deflation cast a pall over the country’s skies.

We forecast Chinese growth of 4.8% in 2024 spiralling further, to 4.5%, in 2025. Slower domestic demand in China, as consumers opt to pay down debt, has caused authorities to lean more heavily on manufacturing and exports. This strategy has also contributed to growing trade tensions with the West, resulting in a series of retaliatory tariffs and trade restrictions that’ll negatively impact not just Chinese, but global trade patterns going forward.

The relatively modest global outlook for 2024 will translate into a soft environment for commodity prices, as weaker demand and ample supply put downward pressure on pricing. China’s deceleration, combined with supply from non-Organization of the Petroleum Exporting Countries (OPEC) producers, will continue to constrain oil prices.

We forecast average West Texas Intermediate oil prices to cruise at slightly less than US$78 a barrel in 2024, before dropping to around US$71 in 2025. Gold prices continue to push against this trend, buoyed by interest rate cuts and ongoing geopolitical turbulence. We expect gold to average US$2,352 per troy ounce in 2024 and US$2,408 per troy ounce in 2025. 

The bottom line?

The global economy appears to be stabilizing and aligning for a relatively steady approach. While the world’s major economies managed to avoid the crash many had anticipated, this next phase won’t come without risk. The outcome of the U.S. election in November will have far reaching impacts, as we await policy clarity from other newly elected governments, as well.

Geopolitical volatility continues to disrupt commodity markets and supply chains. Increased tensions could further impact global risk sentiment, pressure financial conditions and undermine confidence, leading to weaker global demand. But, given the journey we’ve been through, few would have predicted our current position. Here’s hoping we can stick the soft landing.

This week, a very special thanks to Ross Prusakowski, director of our EDC economics department. As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.