TD forecasts U.S. recession, weaker growth for Canada in 2024

The long-awaited U.S. recession may finally materialize in mid-2024, but it won’t be the end of the world, says TD Securities Inc. (TDSI) in its latest forecast.

According to the firm’s global outlook report for the coming year, the biggest issues facing the global economy are the growth paths for both the U.S. and China.

For the U.S., the firm sees the economy entering a “mild” recession around mid-year, and it predicts that China’s growth will be stable throughout the year.

“But it is hard to have high conviction levels around these views: we put the odds of a U.S. recession at around 65%, and the China growth story is one of fiscal life support that can get turned up or down on a whim,” it said.

While the U.S. economy has easily evaded recession calls this year, the negative factors weighing on growth are building up, the report noted.

Factors such as the lagging effects of high interest rates, higher oil prices and government shutdown risks will all weigh on growth, it said. Additionally, it foresees a weaker labour market, with rising layoffs.

“We expect the unemployment rate to rise from 4% in early 2024 to 4.6% by the second half of the year,” it said.

The combination of a soft labour market and a still-hawkish Fed in early 2024 may be enough to drive a drop in stock prices too, it said.

At the same time, the report stressed that a recession isn’t necessarily a catastrophe.

“[F]or those whose market context is less than 20 years … not all recessions have to come with life-altering crises and a zombie apocalypse,” it said. “Sometimes a recession is just a recession.”

Assuming a mild downturn in the U.S., the report forecasted 0.7% growth for the U.S. next year, with Canada recording 0.9%, and China posting 5.1%.

Global GDP growth was forecast at 2.4%.

“The Canadian economy is an outperformer in 2024, with growth of 0.9%,” it said.

“But the headline number masks a softer underlying picture: the Canadian economy has entered a period of weaker GDP growth and is back in excess supply, as households cut back on discretionary spending to prioritize debt payments amid the ongoing squeeze from fixed-rate mortgage renewals, which will exert a larger drag next year,” it said.

“Growth should pick back up over the second half of next year as the Bank of Canada begins to ease, but we expect per-capita GDP growth to remain negative through 2024,” it said.

With growth expected to be weak in the U.S., Europe and the U.K., rate cuts could come sooner than the market currently expects.

“We expect the first cuts from the [Bank of England] in May, Fed and [European Central Bank] in June, and [Bank of Canada] in July 2024,” it said, with rates coming down steadily in the second half of next year.

“Even with our relatively aggressive rate cut expectations, real policy rates are still in restrictive territory between 1% and 2% in the U.S., Canada, and U.K. by end-2024, with the euro area just slightly below 1%,” it said.