United States

The U.S. economy remains fundamentally strong, albeit with signs of a slowdown. 

Real GDP grew at an annualized rate of 3.0% in Q2 2024, up from 1.6% in Q1. However, growth in Q3 may face headwinds from the impact of natural disasters and storms. The Q2 expansion was broad-based, driven by gains in consumer spending, business investment, and inventory accumulation.

Consumer spending has moderated from the rapid pace of 2023 but remains healthy, with September core retail sales increasing by 0.7% month-over-month (MoM), outpacing expectations. Encouragingly, revised government data indicated a boost in the consumer savings rate to 5.5%, reflecting solid financial health relative to historical averages.

However, not all economic indicators are positive. Credit card and auto loan delinquencies have been steadily rising over recent quarters, especially among lower-income households.

The labor market remains well-balanced but is showing signs of cooling. While September’s job creation appeared strong at 254,000, recent months have seen job gains averaging below 200,000—significantly lower than the levels achieved during the robust 2022 and 2023 periods. Wage growth has moderated to approximately 3.9% annually, and job market dynamics appear more balanced, with job openings down to 8 million from the 12.7 million peak in 2022. Additionally, quit rates have returned to pre-pandemic levels.

Inflation is largely resuming its disinflationary trend after a brief resurgence earlier this year. The core PCE (the Fed’s preferred inflation measure) fell to 2.7% annually in August, averaging 2.6% over recent months. Although September’s CPI (+0.2% MoM) and Core CPI (+0.3% MoM) came in slightly above expectations, the annual CPI increase of 2.4% marked a three-year low.

The Federal Reserve initiated its first rate cut in September, reducing rates by 50 basis points (bps), with economists projecting an additional 150 bps of cuts by the end of 2025. 

Canada

Canada’s economic growth has been relatively modest year-to-date, with real GDP slightly exceeding expectations, projected at 1.2% for 2024 and 2.0% for 2025. 

However, on a per-capita basis, growth has declined due to substantial population increases.

The labor market is under pressure, with unemployment rising as rapid population growth outpaces job creation. Inflation has decreased significantly, with core inflation at 2.4% year-over-year (YoY) in August and headline inflation reaching the 2.0% target.

The Bank of Canada has reduced interest rates by 25 bps for three consecutive meetings, and many economists anticipate continued rate reductions over the next 12-18 months. There is concern that inflation could fall below the 2.0% target.

Despite declining rates, consumer spending may struggle to gain momentum in 2025 due to Canada’s mortgage renewal system. Many homeowners will face significantly higher interest payments as a percentage of income in 2025 and 2026, compared to contracts set during the ultra-low-rate environment of 2020-2021. 

However, economists forecast a notable uptick in business investment by 2025, as wage growth slows and interest rates decline.  

Europe

Europe’s economy remains sluggish, with the Eurozone’s real GDP expanding by 0.3% quarter-over-quarter in both Q1 and Q2. 

Growth has been robust in Spain, moderate in France and Italy, and slightly negative in Germany.

Consumers are relatively more optimistic than businesses, driven by rising real incomes and high savings, which have bolstered sentiment. There is cautious optimism for accelerating growth due to factors such as the waning energy crisis, strong employment levels, substantial consumer savings, and the likelihood of continued interest rate cuts amid slowing inflation. 

The Services PMI has been positive for several months following a lull in the second half of 2023.

However, manufacturing remains weak, with PMI surveys still below the 50 threshold, indicating stagnation. The recent announcement of substantial stimulus measures by China may support European manufacturers, given China’s significant import demand for European goods.

The European Central Bank (ECB) cut rates in June, and further reductions are anticipated as core inflation slows, with core CPI at 2.8% YoY.

China

China’s economic performance year-to-date has fallen short of both consensus expectations and internal targets. 

However, the government recently introduced the most extensive set of stimulus measures since the pandemic.

The property market remains severely weak, with several large developers defaulting, leaving a substantial inventory of unsold apartments and a growing number of uncompleted projects. New home prices fell at their fastest rate in nine years in August, and consumer sentiment and retail spending remain subdued. Youth unemployment is also a concern, standing at 18.8%.

Deflationary pressures persist, with companies cutting prices across various goods. 

With its 5% annual GDP growth target at risk, the government unveiled extensive stimulus initiatives, including lowering reserve requirements, cutting interest rates, reducing minimum down payment requirements for home purchases, and providing incentives for stock buyback lending through a stabilization fund. The government has also suggested that fiscal stimulus is forthcoming, with economists widely agreeing that significant fiscal action is necessary to effectively stimulate domestic demand.