As the Bank of Canada deliberates what to do with regard to interest rates (it announced a 50 basis-point cut yesterday), it considers a wide range of economic factors. To this end, the Bank provided an updated global economic outlook in its new Monetary Policy Report.

Barring one or more geopolitical factors (the Bank cites the conflicts in the Middle East and Ukraine, increased trade tensions and the outcome of the elections in the United States and elsewhere) boiling over into the economic sphere, the Bank of Canada’s latest forecast is for the global economy to grow by around 3% in 2025 and 2026 as inflation eases and interest rates come down.

Given the headwinds generated by the battle against inflation, the global economy has fared reasonably well. In a nutshell, the tightening of monetary policy in countries around the world worked in that inflation has come down from the peaks reached in 2022 without pushing many economies into a recession. The uplift from interest rates coming down will, in turn, support growth going forward.

This bodes well for Alberta’s trade-reliant economy.

Perhaps the biggest surprise of the inflation battle has been the resilience of the U.S. economy. More than a few analysts thought the U.S. would experience a hard economic landing, but it seems to have avoided having to land at all. Ongoing growth in the U.S. is also a key reason why the global economy is emerging from the inflation battle in relatively good shape.

The Bank of Canada is forecasting 2.8% growth in the U.S. this year compared to just 1.2% in Canada. U.S. economic growth is expected to ease in 2025 and 2026, but only modestly. If global demand is important to Alberta’s economic trajectory, at 89% of the province’s international merchandise exports, U.S. demand is absolutely critical, so the forecast for continued U.S. resilience is definitely good news.

The outlook for two other key regions is less positive.

China is Alberta’s second largest foreign customer after the U.S. Despite a concerted effort by the governing regime to shore up what has been wobbly economic growth since the pandemic, China’s economic growth is forecast to slow this year and in 2025 and 2026. Of particular concern to Alberta is the fact the slower growth in China is weighing on its oil consumption and, in turn, global oil prices. In addition, trade disputes with Canada could have a negative effect on Alberta’s export performance in the short term.

Although Alberta doesn’t sell a lot to Europe relative to the U.S. and China, it’s still an important customer and a key variable in the global economy. The euro area is forecast to grow by only 0.7% this year and 1.2% in 2025 as the region deals with, according to the Bank, weak productivity growth, past energy shocks and strong competition.

Overall, the Bank of Canada’s latest global outlook is in line with our most recent forecast and, while it could be better, is a generally supportive backdrop to the economic growth we see in Alberta over the next two years.

Answer to the previous trivia question: Mastercard became a publicly-traded company in 2006.

Today’s trivia question: Which international institution was founded on this day in 1945?