A soft landing for the U.S. economy suggests a more resilient outlook for some key international economies. Looking at the closest U.S. trading partners, the 2024 growth forecasts look increasingly positive for the Eurozone, United Kingdom, Canada, and Mexico. The overall global GDP growth is anticipated to be 2.6% in 2024.
Firmer global growth will likely also translate into a more gradual pace of monetary easing for some key central banks. One can now envision later or more gradual rate cuts from the European Central Bank, Bank of England, Bank of Canada and Bank of Mexico.
Some depreciation in the U.S. dollar is expected as 2024 progresses, although a softer U.S. landing and more gradual pace of Fed easing could mean the greenback softens by less than previously expected.
With respect to individual countries or regions, economic weakness in the Eurozone and the UK will likely persist and one could still anticipate those economies experience mild recessions. However, with a more resilient U.S. economy helping to underpin global demand to some extent, we believe the Eurozone and the UK can recover a bit more quickly in 2024. While still far from robust, the 2024 GDP growth forecast is 0.6% for the Eurozone and 0.5% for the UK.
For Canada and Mexico, both economies have very significant trade linkages with the U.S. The U.S. represents the end destination for 70% or more of overall merchandise exports from both countries. As a result, a firmer outlook for the U.S. should also mean better growth prospects in Canada and Mexico, prompting the 2024 GDP growth forecasts for Canada and Mexico to 1.0% and 2.0%, respectively.
Amid a backdrop of somewhat firmer growth prospects for 2024, select central banks will likely adopt a more gradual approach to lowering interest rates. For the European Central Bank (ECB), an improving inflation outlook will see the ECB deliver an initial rate cut in April and proceed at a 25 bps per meeting clip. As Eurozone growth recovers, however, the ECB is expected to downshift to a 25 bps-per-quarter pace from Q4-2024 and reach a terminal policy rate of 2.00% in the second half of 2025.
For the UK, with inflation still elevated, Bank of England (BoE) rate cuts will likely begin slightly later than the ECB. The BoE will initiate an easing cycle at its June meeting. Given a moderately stronger U.K. growth outlook, rate cuts will likely continue at a steady 25 bps per meeting clip until well into 2025. Given this backdrop, the BoE’s policy rate will likely not reach 3.00% until the second half of next year.
Turning to Canada, given the progress to date in reducing inflation, the Bank of Canada (BoC) will likely deliver an initial rate cut in April and proceed at a 25 bps-per-meeting pace thereafter. However, with an expectation for steadier Canadian growth, it is likely the BoC will slow cuts to 25 bps per quarter from Q4-2024, and not reaching a terminal policy rate of 3.00% until the second half of 2025.
Last, it is likely that the first Bank of Mexico rate cut will be in March but expect Mexico’s central bank to proceed only in 25 bps rate cut increments. Banxico will not reach a policy rate of 8.25% until the second half of next year.
Finally, it is expected that there will be a depreciation of the U.S. dollar in 2024 as the Federal Reserve lowers interest rates and as a relatively more optimistic global growth outlook potentially leads to some loss of safe-haven support for the greenback. Still, given a somewhat firmer outlook for U.S. economic growth and a slower pace of Fed easing than previously expected, the extent of U.S. dollar depreciation could be less than previously expected.