• Inflation has made notable progress in recent months in many economies, enabling central banks to shift their warnings of potential interest rate hikes to a dialogue around the timing of highly anticipated cuts
• The U.S. is expected to continue to considerably outperform its peers. Through geopolitical risks and high borrowing costs, the U.S. is expected to continue to impress, buoyed by remarkable productivity. This is out of step with other countries where growth has cooled markedly. Canada is no exception to this pattern, but domestic inflation has not ceded as much as in other regions, creating a challenge for the Bank of Canada.
• In the Eurozone, both goods and services inflation have cooled substantially. The European economy has stalled since the third quarter of 2022 and traditional economic dynamics have settled in to rebalance demand and supply, and to restore price stability.
• Although Canadian economic growth has steadily evaporated, decades-long housing shortages are coming home to roost. Through January, Consumer Price Index (CPI) inflation excluding housing-related costs (rent, mortgage interest costs, and replacement costs) has already returned to 1.8% year-over-year ("YoY") and is at an even lower 0.6% (annualized) on a quarterly basis¹. Strip out the same housing factors from the classic core CPI (excluding food and energy) and we see virtually no growth in the quarter ending in January. The picture that emerges is of an economy with accumulating slack.
• China’s economic challenges linger despite fiscal stimulus introduced toward the end of last year. The current economic situation is best characterized by the lingering ripple effects from the overhang in the housing market.

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¹ Source: Bloomberg Finance L.P, TD Economics.

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