Economic forecasts: Improvement in Europe and Disappointment in North America.

Below are a few highlights of our most recent forecasts. For more information, please see the following document: NOTE - This link will open in a new tab..

The global economy remains sluggish

The drop in oil prices did not provide the global economy with as much stimulus as expected, while soft U.S. growth at the start of the year was another disappointing factor. However, Euroland’s economy is faring better, with modest signs of acceleration from quarter to quarter. Inflation is on the rise and negative interest rates are less widespread. We have raised our annual growth forecasts for the euro zone’s real GDP. For its part, Britain’s economy is losing a bit of steam. In Japan, growth was surprisingly strong in the first quarter, leading us to increase our forecasts. Among the primary emerging countries, India is in the lead, while China continues to slow and the economies of Brazil and Russia are contracting. Global real GDP should expand 3.3% in 2015, down from our previous forecast, and reach 3.9% in 2016.

United States and Canada: Real GDP contracts at the start of the year

Several factors impacted U.S. real GDP growth in the first quarter. The harsh weather, the labour dispute at West Coast ports from December to the end of February, the rise of the greenback and the sharp drop in oil sector investment all hurt the economy, reducing real GDP by 0.2% (annualized) in the first quarter. Fortunately, the situation in the spring promises to be better. Jobs growth strengthened since the temporary weakness in March and the fairly tepid rebound in April. Until the start of the spring, consumers were opting to save the money freed up by lower gas prices, but they may now be more inclined to spend. The weakness early in the year will nevertheless have a big impact on real GDP growth: an increase of only 2.4% is now forecast for 2015. Faster growth of 3.0% is still expected next year.

The target range for U.S. federal funds should not increase before September’s meeting of the Federal Open Market Committee (FOMC), after which we expect key rates to rise very slowly. As Canada’s economic difficulties appear to be worse than previously anticipated, the Bank of Canada (BoC) should not initiate monetary firming until the very end of 2016. The BoC could soon adopt a more concerned tone – this would put downside pressure on the loonie and Canadian bond yields. The BoC could even make a surprise move by lowering its key rates again.

Given that Canadian real GDP pulled back in the first quarter, growth could be just 1.5% in 2015, versus our previous forecast of 1.9%. The difficulties in the energy sector will force the three producing provinces into recession this year, while a number of others will capitalize on the upswing in manufacturing. Growth should pick up to 2.2% in 2016, once the adverse effects of the drop in oil prices have waned further.

Ontario should benefit from a real GDP increase of 2.4% in 2015. The manufacturing sector will make a significant contribution to growth. The economy should maintain a good pace in 2016, while a 2.5% increase in real GDP is anticipated.

Quebec does better in early 2015

The first quarter was fairly weak for Quebec’s economy. The harsh winter had a negative impact on some statistics, particularly housing starts and retail sales, but the increase in electricity output saved the day. Economic activity grew 0.3% in January then ticked down 0.1% in February. Despite some weak economic statistics at the start of the year, real GDP should tick up in the first quarter. The fairly slow start is then expected to give way to faster growth. Real GDP growth in Quebec will be just 1.5% in 2015. The economy should hit 1.7% in 2016, when investments finally start to rise.

The author

Hélène Bégin

Hélène Bégin

Senior Economist
Hélène Bégin holds a Masters and Bachelor's degree in Economics from the University of Laval. She has been an Economist with Desjardins Group since 1994, and is responsible mainly for the Quebec economy, including monitoring and forecasting. She conducts targeted analyses of issues such as households and corporate finances. Ms. Bégin is also an expert in the residential housing market and establishes the Desjardins Group position in this regard through various releases, in addition to acting as a media spokesperson in these two fields.