Spring economic outlook

What do the coming months of 2024 have in store for us? As spring is often time for a good housecleaning, we’re taking stock of the state of the economy as we approach the second quarter of the year. Recent budgets, upcoming elections, uncertain geopolitical conditions: our chief economist takes a close look at all the hot topics of the day. He provides a sensitive and sensible analysis of current economic trends on a provincial, national and global scale—and on a human scale, too.

Ashleay: Welcome to the “In Your Interest!” podcast. My name is Ashleay, and this week I'm joined, as usual, by my colleague, Chief Strategist, Sébastien Mc Mahon. Today we’ll be taking a look back at the latest economic news and answering some of the questions that you might have. Hi Sébastien!

Sébastien: Hello, Ashleay. How are you?

Ashleay: Good, good, good. How are you?

Sébastien: I'm good. I mean, winter's almost over; spring is upon us. Only good things happening.

Ashleay: Absolutely. So, Sébastien, what are the hot topics in the economic sphere this spring?

Sébastien: Sure. So, when spring arrives, it's also budget season on the federal and provincial levels. This might usually seem boring, but now we're having interesting activity here. The province of Quebec announced that its budget will be tabled on March 12th. On the day we're recording this, we’ve just had the publication of the Nova Scotia budget. B.C. also put out their budget last week. So we're starting to see some action here. And, if you recall, a few months ago during the fall, we broke down the fall budget updates for both the federal and provincial governments. We talked then about the debt burden coming from rising deficits and interest rates as well as how economic growth wasn’t living up to expectations. It’s been hard for governments to look forward and see a path back to a balanced budget. This means that the 2024 and 2025 budgets should be characterized by tough choices. In Quebec, for example, the government is already announcing that the next budget will come with a large deficit, speaking in particular of the impact of public sector negotiations, which just added $10 billion of spending over the next five years. And don't forget that inflation also was directly inflating the government's tax revenue. This factor is also fading with inflation coming back down to target. So it's not really an easy balance to achieve for governments right now.

Ashleay: And I think that permanent tax cuts in Quebec have also become costly?

Sébastien: Yes, exactly. And the expectations that governments will act on housing are becoming pretty high. This will also likely be a cause of future deficits. We’re now hearing governments announce that no service cuts or tax increases are imminent. But we'll see what kind of tough choices they decide to bring us.

Ashleay: Okay. What are we likely to see at the federal level?

Sébastien: Well, first, I think investment incentives will be important. Productivity—GDP per hour worked—is down in Canada. Ours is contracting while in the US it's rising. There are many reasons for this, but one that sticks out is that, in Canada, we have more SMEs than in the US, which tend to be more labour-intensive and less capital-intensive. We also have the presence of oligopolies—for example, banks within large corporations. So there may be less of an incentive to innovate, here. Government can potentially do something to incentivize investment, maybe through tax cuts—especially for small businesses, I would say—to help with investment, to support higher labour costs. One of the themes that should be all over this budget is housing: regulatory relief to speed up construction projects, changes in taxation on rental sales, if the profits are reinvested in housing, for example, could be measures that we see.

Ashleay: I see. And what about for provinces?

Sébastien: Again, housing should be part of these budgets. At every level of government there are initiatives that can be implemented to speed up construction and help rebalance the housing market. Income support: we've discussed that inflation tends to hit the poorest of the population, so wealth redistribution should be an important part of this budget. But what will likely be at the forefront of the provincial budgets is public transportation. Especially in the province of Quebec, which is going through a very difficult time, since workers have changed their habits. So we’re expecting governments to act on this front.

Ashleay: Okay. And now for the question on many people's minds: will mortgage rates start to come down?

Sébastien: Well, I would say yes and no. So, the “no” part is that we are expecting that rate cuts are coming in this country, but likely in the second half of the year. So, if you have a floating mortgage, you won't likely see rate cuts impacting your rate before this summer. But be mindful that there's no strong consensus right now; there's a wide array of opinion. We think that it'll be July. Some people are thinking it's before that. Let’s just say that rate cuts are coming this year, but maybe not as quickly as some would hope. The yes part is that if you have to renew your mortgage, you want to go to a fixed mortgage in the coming few months, well, markets are already starting to price-in future rate cuts. So markets are starting to move. The five-year rate is starting to move down a little bit lower. We’ve seen the fixed rate, the five-year fixed rate starting to fall down a little bit. Just to 0.1% from the recent peak. But, you know, as we get closer to the summer, maybe we could see falling fixed rates being something that we talk about in the media, for example.

Ashleay: Okay, what are we watching internationally?

Well, the global economy seems to be bottoming out. The US economy seems to be re-accelerating right now. So this is good news. The Canadian economy is in what we call a per capita recession, but it seems that we're forming a bottom there. The European economy also seems to be about to enter recession. But, you know, we could be forming a base in 2024 and rebounding from there. The Chinese government is trying—timidly—to stimulate its economy. So that means that we're possibly bottoming out and are looking at the emergence of a new business cycle just in front of us. So of course, this could be good for investors and for overall economic momentum. Finally, the US elections are coming up in the fall. But until then, we’ll be hearing about whether Donald Trump will be a candidate in this election, what the implications of a Trump re-election would be, etc. So expect this to be all over the place in the next few months.

Ashleay: What about the markets? Are they still making fireworks?

Sébastien: Still making fireworks now. The big AI machine led by Nvidia continues to push prices higher, but we are starting to see fragmentation within the Magnificent Seven that we've discussed in the past. The Magnificent Seven includes Nvidia—a chip designer— Amazon, Meta, Apple, Alphabet, and you have Tesla that's in there, too. We're seeing Tesla not having a good run. We're seeing Nvidia just blowing past everyone else in The Magnificent Seven. Now the talk is whether we should focus first on the chip makers—those focusing on providing the hardware for all of the servers that will make AI possible—and then after that turning to other sectors as the AI team moves forward. So the question that you ask, you know: “still making fireworks?” The answer is “Yes, for now.” Uncertainty around this team is growing a little bit. How do you play that team? I think this will evolve as time goes on. But, you know, as always, remain well-diversified. It's always tempting to put all your money into tech but being very well-diversified and picking the right teams at the right time—this will likely be getting more and more important as we move deeper into 2024.

Ashleay: Okay. And do other sectors have attractive valuations?

Sébastien: Sure. So we're starting to see good things happen for energy, banks, transportation in Canada, health care, businesses selling products that make the servers that will make AI data centres possible. We're starting to see those names move. So it's not just about the Magnificent Seven or Nvidia; we're starting to see good things happening in multiple sectors right now. It's all good for investors.

Ashleay: Very good. Well, that's all for today. Thank you so much Sébastien, for this springtime economic analysis, which sheds light on what to expect for the rest of the year. And thank you also to our listeners. Please don't hesitate to reach out if you have any questions and we'll see you all next week! Loved this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast, available on all platforms, visit the economic news page on ia.ca or follow us on social media.


Sébastien has nearly 20 years of experience in the public and private sectors. In addition to his roles as Chief Strategist and Senior Economist, he is an iAGAM portfolio manager and a member of the firm’s Asset Allocation Committee. All of these roles allow him to put his passion for numbers, words, and communication to good use. Sébastien also acts as iA Financial Group’s spokesperson and guest speaker on economic and financial matters. Before joining iA in 2013, he held various economic roles at the Autorité des marchés financiers, Desjardins, and the Québec ministry of finance. He completed a master’s degree and doctoral studies in economics at Laval University and is a CFA charterholder.

Sébastien Mc Mahon

Vice-President, Asset Allocation, Chief Strategist, Senior Economist, and Portfolio Manager

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

Share prices

2024-07-12 12:51 EDT
  • ^TSX $22,673.52 $129.39
  • $CADUSD $0.73 $0.00

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