Financial Health and Performance Overview
Slowing Growth, Nearing End of Policy
Tightening Cycle
With inflation at multi-decade highs in several economies, central banks have significantly increased their policy rate since last year to re-align
demand with supply and reduce inflation. While there are increasing signs that some drivers of inflations are slowing with improved supply chain
conditions, lower commodity prices and transportation costs, and healthier inventory levels, inflation remains elevated in a broad range of
countries as these disinflationary pressures are partly offset by strong consumption and robust wage growth, consistent with currently tight
labour market conditions.
While we still expect economic growth to slow meaningfully in 2023, with mild recessions in Canada and the U.S., the global economy remains
resilient to the broad range of headwinds that would normally slow economic activity, including rapid rate hikes and tensions in the U.S. banking
system. Against this backdrop, inflation is slowing less rapidly than forecast in Canada and the U.S. Many central banks are at the end or nearing
the end of their tightening cycles, but cuts to policy rates are unlikely this year and expected in 2024.
After holding its policy rate at 4.50% since January 2023, we now expect the Bank of Canada to raise it to 4.75% accompanied by an ongoing bias
that is prepared to do more as needed, owing to the persistence of inflation and signs of a sharp improvement in housing markets. Meanwhile,
the Federal Reserve may be closer to being done raising its policy rate as it evaluates whether sticky inflation merits additional tightening as
banking tensions lead to modest drag on lending and growth and is expected to undertake a series of gradual rate cuts commencing early 2024.
The ECB and Bank of England face further tightening ahead and the Bank of Japan is a wildcard under new Governor Ueda. Inflation remains
more challenging in the Pacific Alliance Countries as central banks have had to tighten more than expected to subdue it. As in many other
countries, regional central banks are either done or nearly done raising rates.
CANADA: BANK OF
CANADA POLICY RATE VS
HEADLINE INFLATION 1
CANADA UNEMPLOYMENT
RATE 1
PAC UNEMPLOYMENT
RATES 1
25
%, SA
PAC INFLATION 1
6
87
%
Headline
6
inflation
5
4
3
2
16
%
forecast
14
12
10
8
6
16
y/y % change
14
Chile
20
Colombia
12
Chile
Mexico
Colombia
Peru
Mexico
Peru
10
15
10
5
8 642
0
-2
-1
Policy rate
2
0
-4
15 16
17 18
19
20
21
22
23
2010 2012 2014 2016 2018 2020 2022
18
19
20
21 22 23
24
2006
2010
2014
2018
2022
1 Sources: Scotiabank Economics, Bank of Canada, Statistics Canada, Haver Analytics.
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