Three global economic challenges that could impact your investment portfolio

Canada’s population is aging, and the country needs to build its workforce to keep its economy growing in the long term. To help solve this demographic issue, the Canadian government has been encouraging immigration Opens in a new window.. 

“Think about the two primary components of growth,” says Dr. Sager. “You need a workforce and you need capital. And when you combine them in the most productive way possible, that’s how you generate strong growth. So, to have immigration boosting the Canadian labour force is an inherently good idea.”

In the short term, however, immigration creates frictions, such as those being experienced by the housing market. More immigration means more people requiring housing. This bids up home prices and rents. Given that there’s an under-supply of housing in Canada, this is directly contributing to Canada’s inflation problem.

“But then again, labour markets are tight and that's bidding up wages, which is a problem for central banks,” reminds Dr. Sager. “Well, if we bring in in more workers, that will increase labour supply and help moderate inflation.”

The U.S. economy proved surprisingly resilient throughout 2023, but much of that strength came from temporary factors that will not persist into 2024.

“We had a really significant fiscal stimulus at the beginning of this year from the U.S. federal government,” says Dr. Sager. “Much of that money went into the pockets of people who had the highest propensity to spend every dollar they received. That was very powerful.”

Student debt repayments were also on hiatus until very recently, and there was still excess savings left over from the pandemic that supported consumer spending.

Therefore, with these factors fading, the mild recession in the U.S. many have been predicting may finally come into being.

Europe has done more to tighten its financial conditions than any other economy. This tightening has slowed European growth, and it’s now in a recession.

“We were looking for a German-led recession for the Eurozone as a whole, and that’s what we’ve got,” says Dr. Sager. “Even though you can see one or two spots of light — or improvement, at least — in Europe’s key leading indicators.”

But while we're probably right at the end now of the tightening cycle for the European Central Bank, higher interest rates for longer is still the policy there. Why?

“The reason is a very common one, high and sticky inflation,” says Dr. Sager. “Inflation is coming down but not as quickly as the European Central Bank expected. And so, for that reason, it's going to have to inflict some more pain on the European economy.”

For more on our thoughts on today’s global economic challenges and what they might mean for your portfolio, reach out to your advisor or CIBC representative, or read the latest issue of Perspectives (PDF, 2.6 MB) Opens in a new window..