United States, Canada, Mexico

Our economic and market outlook for 2024

May 16, 2024

Strong workforce growth and improved productivity have made for a surprisingly resilient U.S. economy. Meanwhile, Canada may be first among developed markets to cut interest rates. Mexico's economy will likely take its cue from the U.S.

Roger Aliaga-Diaz, Vanguard Americas Chief Economist

“The U.S. economy has proved more resilient than anyone could have expected despite the Federal Reserve’s efforts to cool it to rein in inflation. For 2024, we anticipate trend growth, a sturdy labor market, stubborn inflation, and a Fed that will move very cautiously toward its first rate cut, if it cuts at all this year.”

– Roger Aliaga-Díaz, Vanguard Americas Chief Economist

United States

Our outlook for year-end 2024

2%

Economic growth,
year-over-year

Favorable supply-side forces spurred greater-than-anticipated growth in 2023. We expect these forces to subside only gradually in 2024, supporting trend growth and job expansion.

2.9%

Core inflation, year-over-year

We continue to believe that the “last mile” of the inflation fight will be challenging. As the economy remains resilient and with underlying strong demand, core inflation is likely to remain above the Federal Reserve‘s 2% target.

5.25%–5.5%

Monetary policy rate

Faced with the prospect of stubborn inflation and the risk of financial conditions easing too rapidly, the Fed may find itself unable to cut interest rates in 2024.

4%

Unemployment rate

We expect labor supply strength and job growth to continue for much of 2024, leaving the unemployment rate at a low level by historical standards.

Canada

Our outlook for year-end 2024

1.25%–1.5%

Economic growth,
year-over-year

Canada avoided a recession in late 2023 because of greater-than-expected growth driven by exports and consumption. We believe that Canada will continue to avoid a recession in the months ahead.

2%–2.5%

Core inflation, year-over-year

We expect inflation to continue decelerating toward the BOC’s target range of 1%–3%. Housing-related inflation, a key driver of overall inflation, should soften as house prices moderate in response to declining affordability. A loosening in the labor market and the resulting easing of wage pressures should additionally slow price increases for services unrelated to shelter. 

4.25%–4.5%

Monetary policy rate

Rapid interest rate increases in 2022 and 2023 have curbed demand such that the BOC led developed markets central banks in pausing its hiking cycle. The BOC could well lead a rate-cutting cycle, too. We foresee the BOC trimming the overnight rate by 50 to 75 basis points this year.

6%–6.5%

Unemployment rate

We expect inflation to slow further in 2024, but at the cost of a weaker labor market. The unemployment rate has increased by more than half a percentage point from a near-record low of 5% since the start of 2023. We expect further rises amid slow economic growth.

What I’m watching


The prospect of slowing homeownership-related inflation

“Prices related to homeownership, also known as owned accommodation, have been a key driver of overall inflation, with a weight of nearly 20% in Canada’s Consumer Price Index. Rapid Bank of Canada rate hikes have driven mortgage interest costs to multidecade highs. However, we expect declining affordability to weigh on house prices, helping to offset some of the impact of higher rates on mortgage interest costs. This in turn should help reduce the broader pace of inflation.”


Rhea Thomas

Rhea Thomas,
Vanguard Economist

An area chart showing the progression of owned accommodation prices’ annual contribution to the Consumer Price Index (CPI), with four components broken out: property taxes and other expenses, insurance and maintenance, replacement cost, and mortgage-interest cost.   Owned accommodation prices’ contribution to CPI remains in a range from around 0.2% to 0.5% from 2015 through the first quarter of 2021, then shoots sharply higher, to as high as 1.5%, through the mid-October 2023, when it sits at 1.2%. Mortgage interest costs detracted from CPI from mid-October 2020 through mid-June 2022 and have since added to CPI on a steadily rising basis, reaching a high of 1.2% in October 2023.

Notes: CPI contributions are on an annual percentage basis. “Other expenses” include land transfer costs and commissions on the sale of real estate. Contributions of homeownership-related inflation are also known as owned accommodation.

Sources: Vanguard calculations, based on data from Refinitiv and Macrobond, as of November 28, 2023. 

Mexico

Our outlook for year-end 2024

1.75%–2.25%

Economic growth,
year-over-year

We foresee GDP growth remaining below trend in 2024 amid restrictive monetary policy, though U.S. demand remains supportive.

3.7%–3.9%

Core inflation, year-over-year

We expect inflation to continue its deceleration toward the higher end of the 2%–4% target range set by the Bank of Mexico (Banxico) as services inflation remains sticky. Resilient consumption and a rise in electricity tariffs represent upside risks, while a stronger currency and a slowing global economy could help moderate price increases.

9.5%–10%

Monetary policy rate

Having cut its policy rate in March, Banco de México held the rate steady in May, citing a disinflation process that could take longer than it previously expected. The central bank foresees inflation falling to its 3% target late in 2025.

3.4%–3.6%

Unemployment rate

The labor market has been robust, with the unemployment rate falling below 3% in 2023. We expect unemployment to rise to the mid-3% level in 2024 due to interest rates remaining restrictive and an anticipated slowdown in developed-market economies.

What I’m watching


U.S. GDP and what it could mean for Mexico’s exports

“There’s a strong correlation between U.S. economic growth and Mexico’s U.S. exports. Some 80% of Mexico’s exports go to the U.S., accounting for nearly 30% of Mexico’s GDP. If U.S. growth slows appreciably, that could in turn influence Mexico’s growth.” 


Vytas Maciulis

Vytas Maciulis,
Vanguard Economist

A line chart showing year-over-year growth in Mexico’s exports to the U.S. through June 2023 and year-over-year growth in U.S. GDP through September 2023.  The trajectories of both measures are highly correlated, moving in a similar direction and by a similar magnitude over the period from 2006 through September 2023. The chart shows the correlation continuing through 2024, based on Vanguard forecasts.

Notes: All percentages reflect year-over-year changes. Chart shows Mexico’s exports to the U.S. through June 30, 2023, with Vanguard’s forecast thereafter, and U.S. GDP growth through September 30, 2023, with Vanguard’s forecast thereafter. 

Sources: Vanguard calculations, based on data from Refinitiv, as of September 30, 2023.

Notes: All investing is subject to risk, including the possible loss of the money you invest. 

A closer look

Joe Davis

Our outlook for 2024

A return to sound money, with interest rates above inflation, is a real positive.

Qian Wang

Asia-Pacific

China likely to stimulate its economy while Australia’s policy remains tight.

Jumana Saleheen

Europe

Monetary policy starting to slow euro area, U.K. economies.

Abstract of balls leading into circle

Return forecasts

Expected market returns, volatility levels over the next 10, 30 years.

abstract of balls within linked spheres

A resilient U.S.

Workforce and productivity gains are driving continued economic strength.

Abstract of balls within red ribbon

U.S. stocks

Valuations have rarely been as high as they are today, a reason for caution.