How is the outlook for inflation evolving?
The big point about inflation is that it was an enormous problem a few years ago, in 2022 in particular, approaching double digit kind of annual rates of increase and we've seen a great deal of that go away. It's not fully gone, we're not all the way back to normal, but this is more of a 2% to 3% inflation world, as opposed to an 8% or 9% or 10% inflation world, or even some countries, including Canada, that are essentially back to target.

That's been awfully welcome. And a big problem in the world has been removed. And that's been a central part of why central banks have been able to cut rates. All of that is entirely welcome. It has been a little bit trickier in the U.S. for a few reasons. One is just that American inflation hasn't come down quite as much as everywhere else.

It's around 3% as opposed to more firmly in the twos. And there are some concerns. One is that the prospect of American tariffs should add at least a little bit to inflation, potentially the prospect for faster U.S. growth. And that's thinking about the broader policy mix and tax cuts and deregulation and things like that, potentially spurring growth more than the damage from tariffs might subtract from it.

That combination, the faster growth does also add somewhat to inflation. We have had to upgrade our U.S. inflation forecast. We still think it can be around the same level as this year, or maybe even a hair lower, but not the amount of progress that we would otherwise hope to get. I guess accepting the U.S. with a few temporary factors, we do believe there is room for further inflation improvement.

Over the next year. In the next few years, we see economies that are a bit less overheated or maybe not overheated than they were compared to a few years ago. We similarly see that corporate pricing plans are a little bit more cautious, and we can see that wage growth has settled somewhat as well. We feel pretty comfortable with the idea that inflation continues to come down.

The US. It takes a bit more work. That does mean that in general, central banks can keep cutting rates. They're likely through the most aggressive phase of that, but they can cut rates somewhat further. Maybe the U.S. Federal Reserve a little bit less, just given that slightly different trajectory.

What are the likely impacts of President-elect Trump’s stated tariff policies.
Deglobalization has been a theme and a global trend for a number of years now. We've seen relations fraying among countries, and trade in some cases, compromised. President-elect Trump's proposal for more tariffs is not a brand new idea, but there are some serious numbers being thrown around.

Taken at face value, if the world were to be hit by a 10% tariff, if China were to be hit by a 60% tariff, or even in some cases, we've heard larger numbers like a 25% figure applied to Mexico and Canada, that would be problematic. So if we get the full force of tariffs, it is a problem. It would be a material blow to economic growth over the next few years.

It could even be recessionary for the likes of Canada and Mexico, which are very closely linked to the US. I will say we are not taking tariffs fully at face value right now. We do view them very much as a bargaining position. And Trump is very clearly tied as an example to the threatened Canadian Mexican tariffs, two border controls.

We think those countries are in a reasonable position to deliver some additional border control. Likely the full set of tariffs isn't applied. And similar sorts of comments can be made toward other countries and in other directions. What we do budget for is some additional tariffs. We do therefore budget for some, deterioration of growth or some loss of growth relative, to the otherwise trend, on the order of about a quarter of a percentage point to half a percentage point chopped off growth for quite a range of affected countries and for the U.S. and tariffs being inflationary in nature, adding about a third of a percentage point to inflation.

We think that's the most likely scenario. The effect on inflation would have been bigger, but it looks like perhaps the Federal Reserve won't be in a position to cut rates quite as much as before. But ultimately there is an awful lot of uncertainty around this. And so we're left essentially waiting to get a sense for what really does get applied and aware that there may be tariffs that are in place only temporarily.

That was very much a theme in the 2017 to 2019 period. In a position to do a bit less damage as a result of that.

What’s the outlook for global economic growth for 2025?
The fear of recession has really dominated the economic thinking in recent years, and so we've generally expected growth, but been very, very wary of the potential for growth not being achieved. And that debate still exists today. But I think it's shrunk considerably. The risk of a recession is materially lower than it was. And that is to say that as we look forward to 2025, we're expecting economic growth.

We expect it with a bit more conviction than we've had in recent years. It's not a forecast for especially fast growth. We're looking for fairly mediocre growth, maybe even a little bit slow over the first half of the year and then slightly faster over the second half. But ultimately, economic growth. And in terms of why it's not likely to be especially fast, let's keep in mind that interest rates are still fairly high.

You know, let's acknowledge that some parts of the world, in fact, large parts of the world are moving fairly sluggishly still. The U.S. is a notable exception. China is still challenged as well. It's not a time of rapid growth. But we do hope for, not just growth, but some pickup, perhaps over the second half of next year.

And that is a statement that as high interest rates become less high, with a lag that should start to have a beneficial effect. In China, we are looking for some additional stimulus to be delivered in the new year, and that's likely to be supportive of Chinese growth as well. And then just more generally, as we look at some of the recession signals that we've been tracking for some time, many of those have pivoted from blinking red to blinking green.

So gives us a bit more confidence for growth in the future.

How will China’s economic slowdown impact global growth?
I think the first thing to realize about China is that it is a diminished economy, not growing at 6% or 8% or 10% a year anymore, which was the norm not that long ago. And it has some real challenges. The housing market, has gone from being a boom to bust, you might say, and something that was a bubble is just no longer, a bubble state.

We can look at, demographics in China and the population is shrinking, as is the working age population. And that just takes something off demand and off economic growth as well. When we talk about the private sector, there has been a pretty clear policy preference in recent years for the public sector and for the state over the private sector.

It's been a less friendly place for entrepreneurs to operate. And then, of course, you have relations with the West and with the US, most importantly, and so the prospect of tariffs coming on. All of that is quite challenging and has slowed Chinese growth and has created a fair amount of pessimism, as well.

I will say that when I take a closer look at China, I do think that maybe there's a little bit too much pessimism there. Yes, China is set to grow it at four point something percent each of the next couple of years, as opposed to the sixes and eights and tens. Yes, we do think it's on its way down to maybe more of a 3% to 4% trend growth rate, over the next several years.

And that might just be the new norm. But that's not a slow rate of growth in an absolute sense. It's worth appreciating that as much as U.S. tariffs on China wouldn't be particularly welcome, equally, only about 2.5% of what China makes gets sold to the US. It has plenty of other international customers. It has of course, a huge domestic customer base, as well.

And when we look at the Chinese trajectory, we still think it's plausible that China can approximately follow the South Korean and the Japanese experience, which is to say, to eventually reach rich country status and maybe not on as quick a trajectory as before. But we still think that's plausible given the broad contours of China. And then in the near term, we do believe there's more Chinese stimulus coming.

We think that they are likely waiting, sitting on their hands, looking for more clarity on just what the U.S. has planned, under president elect Trump. And, will respond in some form and respond with stimulus that supports the economy and perhaps, induces additional consumption in particular. And so, again, the takeaway is not a great optimism for China, but we do think it can still eke out okay growth, maybe even better than okay compared to a lot of developed countries.

And, and maybe there is just too much pessimism around the country right now.

Should we be concerned about the high levels of public debt?
It seems like there's always some other short term acute issue that is distracting markets. But I will say fundamentally, one of the big economic questions for the years ahead is how will countries get themselves out of this quandary, which is they built up very large public debt loads. They are in many cases running, quite large deficits, meaning that loads are growing quickly as we speak.

And it's not as much of a cost free proposition these days because, of course, interest rates aren't as low as they were. And even as they now start to come down, they're not likely to be as low as they once were. Again, it's not the dominant concern for markets right now. And I wouldn't even say it's the dominant force for the economy.

But it is something that I believe the bond market will have to pay a bit more attention to. And so we are assuming that there will be some slightly larger risk premiums and term premiums in certain markets, reflecting that we actually built a fiscal health index that tries to assess which countries are perhaps in the most perilous shape and which countries are in better shape.

And at the top of the list, where countries including Italy and the U.S. and UK and Brazil and Japan and and actually a host of other European nations like Belgium and France right after them. So there's quite a list of countries that have to do some work. And I guess by work we mean likely some measure of fiscal austerity over the second half of this decade.

And austerity generally takes a bit off growth. So those are countries in slightly worse position to grow. And I think maybe the biggest question mark surrounds the US, which is one of the more challenged countries on this front, but it just doesn't seem to be a political priority right now. And because the U.S. happens to be the world's reserve currency and the deepest market and so on, it can get away with a lot that other countries and other governments can't get away with.

So there's a risk the U.S. does nothing, which is, I suppose, good for the economy over the latter half of the 2020s, but then presents even bigger questions that exist later. But I guess the main point would be one in which one of the reasons that yield curves are likely to be positively sloped. One of the reasons that interest rates probably can't come all the way down to where they were before the pandemic is because there are some fiscal excesses to deal with.

What’s your outlook for the Canadian economy?
So the Canadian economy has been distinctly underwhelming of late. We've seen economic growth, but not a lot. Productivity has been declining. And that's really just been papered over by immigration and fast population growth. The unemployment rate ultimately is a couple of percentage points higher than it was two years ago. So it has not been a great stretch of time, though it has been growth, not decline.

Looking forward, I think it's set to be potentially a choppy time with a number of conflicting forces. And ultimately, those conflicting forces need a bit of further examination. I think point one, is very much that there has been remarkably strong immigration in Canada in recent years, by all accounts, based on changes in government policy that is set to stop quite abruptly.

And so, the tailwind that was population growth should be mostly gone over the next few years. So you do start from a starting point of less growth, not more. Now there are some offsets. And so one would be we believe productivity growth can resume and I suppose pick up and some of that is because there were distortions related to immigration that go away.

Some of that is because we just think the productivity growth was unsustainably poor, and there's no reason why it can't at least go up, if only a little. We should get slightly more help there. I think the main helping hand is likely to be interest rates. And so it's a bit of a tricky calculus. Clearly, the Bank of Canada is cutting rates by more than almost any other developed world central bank.

And so that's helping and especially helpful for a very rate sensitive economy like Canada. So that's probably the big tailwind for the year ahead. I think the complication, though, is that people whose mortgages happen to renew in 2025 and 2026 are still realistically set to renew into higher rates, and it's unlikely to replicate those 2020, 2021 mortgage rates and so on.

The net, we still think lower rates are a tailwind, not a headwind. But for certain households that there is still a headwind to be felt, which presents a challenge. I suppose adding to the complexity, there is a question mark around tariffs. And so we are budgeting for some additional tariffs for Canada, not 25% tariffs across the board, but we do think that there's some drag that comes from that.

We're thinking equally though, that from a political perspective, and with a federal election in Canada scheduled for 2025, there's a fighting chance that there could be some more growth friendly policies emerging from that and potentially in a position to push the economy forward. And so, as I said, off the top, a lot of different forces are potentially fairly choppy.

When we add this all up, we have fairly slow growth over the first half of the year. We think those lower rates then maybe start to click a little bit more and start to help and perhaps elevate even the housing market a little bit starting in the second half of the year. But it should be, at a minimum, an interesting year for Canada.

And with, I would admit, more uncertainty than usual.