The International Monetary Fund has upgraded its outlook for the world economy this year, envisioning resilient growth led by the United States and a slower pace of inflation.

In its latest outlook, the 190-country lending agency said Tuesday that it now expects the global economy to grow 3.1% this year, unchanged from 2023 but better than the 2.9% it had predicted for 2024 in its previous estimate in October.

Worldwide, the IMF thinks inflation will ease from 6.8% in 2023 to 5.8% in 2024 and 4.4% in 2025. In the most advanced economies, the agency expects inflation to drop this year to 2.6% and next year to the 2% level that the Federal Reserve and some other central banks have set as a target.

The combination of steady growth and falling inflation has raised hopes for a so-called soft landing for the global economy – a slowdown sufficient to contain inflation without causing a recession.

“We are now in the final descent toward a soft landing,’’ Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters ahead of the report’s release.

The forecast for overall global growth this year and next (3.2%) trails the 3.8% average from 2000 to 2019. That is partly because the Fed and other central banks aggressively raised interest rates to fight high inflation, and the resulting higher borrowing costs have slowed spending and investment.

Gourinchas said he expects “relatively limited’’ economic damage from the attacks by Yemen-based Houthi rebels on shipping in the Red Sea. The attacks have forced container ships carrying cargo between Asia and Europe to avoid the Suez Canal and instead take the long way around the tip of Africa, thereby delaying and disrupting shipments and raising freight charges. But Gourinchas said that for now, the Red Sea disruptions don’t seem to be “a major source of reigniting supply side inflation,” which arose from far more severe shipping backlogs in 2021 and 2022.

For the United States, the world’s largest economy, the IMF sharply marked up its estimate for growth this year – to 2.1% from the 1.5% it had penciled in three months ago. The U.S. economy expanded 2.5% in 2023 after an unexpected burst of year-end growth fueled by consumers willing to spend despite higher borrowing costs.

The outlook for the slumping Chinese economy was also upgraded by the IMF. It now expects the world’s second-biggest economy to grow 4.6% this year, up from the 4.2% it had forecast in October but down from 5.2% growth in 2023. Government spending has helped offset the damage from a collapse in the Chinese housing market.

“There was a lot of resilience in many, many parts of the world,’’ Gourinchas said, singling out Brazil, India, Southeast Asia and Russia, which has remained surprisingly sturdy in the face of Western sanctions imposed after its invasion of Ukraine.

But the IMF downgraded the outlook for some places. Europe, for example, continues to struggle with dispirited consumers and the lingering effects of the energy price shock caused by the Russian invasion of Ukraine. The IMF expects the 20 countries that share the euro currency to collectively grow a meager 0.9% this year. That would be up from 0.5% growth in 2023 but down from the IMF’s October forecast of 1.2% growth for the eurozone this year.

The IMF also modestly downgraded the outlook for the Japanese economy, to 0.9%, a drop from 1.9% growth in 2023.

The improving inflation outlook is a result of higher interest rates, the end of the supply chain backlogs of the past couple of years, more workers entering the job market and lower energy prices after the spike caused by the Ukraine war. The IMF expects oil prices, which plunged 16% in 2023, to fall a further 2.3% this year and 4.8% in 2025.

The world economy still faces risks. One is that financial markets have become too confident that the Fed will reverse course and start cutting rates as early as its meeting in March. Gourinchas said he doesn’t expect the rate-cutting to start until the second half of 2024. Disappointed investors could drive down stock prices if they don’t see lower rates as soon as they hoped.

Another is that geopolitical tensions, especially between the United States and China, could disrupt world trade. Gourinchas suggested that some of President Joe Biden’s economic policies, including those that benefit American producers of computer chips and green technology, could violate World Trade Organization rules.

The IMF expects world trade to grow just 3.3% this year and 3.6% in 2025, below the historical average of 4.9%.

Europe’s economy failed to expand at the end of 2023, dragging out the stagnation for more than a year amid higher energy prices, costlier credit and a downturn in former powerhouse Germany.

Zero economic growth for the October-to-December period of last year follows a 0.1% contraction in the three months before that, according to figures released Tuesday by EU statistics agency Eurostat.

That extends a miserable run of economic blahs: The 20 countries that use the euro currency have not shown significant growth since the third quarter of 2022, when the economy grew 0.5%.

And the start of this year looks no better, with indicators of business activity still flashing red for contraction. Plus, disruptions to shipping in the Red Sea have constricted global trade through the Suez Canal, a major route between Asia and Europe, surging shipping costs and threatening to boost inflation.

The new figures underlined the growing divide between Europe and the United States, whose economy grew 0.8% in the fourth quarter compared with the previous three-month period, or an annual pace of 3.3% — better than expected.

The eurozone grew 0.5% for the full year, while the U.S. grew 2.5%. The International Monetary Fund on Tuesday upgraded its outlook for the world economy this year, envisioning global growth of 3.1% led by the U.S. but downgrading expectations for the eurozone to a meager 0.9% expansion.

“The big picture is that eurozone GDP has been flat since the third quarter of 2022 when gas prices surged and the ECB started raising interest rates,” Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said in a written analysis.

Not all the news is bad. For one thing, unemployment is at record lows and the number of jobs rose in the July-to-September quarter.

Energy prices also have come down from recent spikes — though they remain higher than before Russia invaded Ukraine — and storage levels of natural gas, which is used to heat homes, power factories and generate electricity, are robust. With gas storage 72% full and most of the winter heating season nearly over, fears of higher utility bills and another energy crisis have eased.

While the economy has stagnated, inflation also has declined rapidly from its painful double-digit peak, falling to 2.9% in December. But people’s pay and purchasing power are still catching up to the levels lost through the price surge.

It’s seen as French farmers pushing for better pay, fewer constraints and lower costs have set up barricades around Paris this week.

Meanwhile, the anti-inflation medicine applied by the European Central Bank — sharply higher interest rates — has curbed business investment and real estate activity like construction and home sales.

Europe’s biggest economy, Germany, shrank 0.3% in the fourth quarter. Formerly a model in how to grow, Germany was one of the worst-performing major developed economies last year.

It is bogged down with multiple issues including higher fuel prices for energy-intensive industries after Russia cut off most of its natural gas to the continent. Germany also has been held back by lack of skilled workers and years of underinvestment in infrastructure and digital technology in favor of balanced budgets.

While the incoming numbers for Europe “don’t point to a significant improvement” and could signal a slight contraction in the first three months of this year, the eurozone should benefit from falling inflation that is restoring consumer purchasing power and expected lower interest rates, according to economists at Oxford Economics.

Some analysts expect the ECB to cut interest rates as early as April, while others think the central bank may wait until June to ensure inflation is definitely under control.

But risks remain, including the attacks by Yemen’s Houthi rebels on ships in the Red Sea, where 12% of global trade passes, amid Israel’s war on Hamas.

Transport costs have risen as shipping companies route vessels around the southern tip of Africa, adding a week or more to voyages. With higher shipping costs and delays to products from clothes to keyboard components, concerns are growing of new consumer price spikes if the conflict in Gaza drags on or escalates.

The trade disruption could add as much as 0.5% to core inflation, which excludes volatile fuel and food prices, Oxford Economics said. Core inflation is closely watched by the ECB.

“We think the impact on core inflation will be enough for the ECB to wait a little bit longer,” delaying lower rates to June, Oxford Economics analysts said in a note.

American consumers, fresh off strong holiday spending, are feeling more confident than they have in two years.

The Conference Board, a business research group, said Tuesday that its consumer confidence index rose for the third straight month, to 114.8 in January from 108 in December. January’s reading came in just slightly higher than the 114 that analysts were expecting.

The index, which measures both Americans’ assessment of current economic conditions and their outlook for the next six months, is at its highest level since December of 2021.

Anxiety over the possibility of an economic recession in the next 12 months continued to fade for most Americans.

Consumer spending accounts for about 70% of U.S. economic activity, so economists pay close attention to consumer behavior as they take measure of the broader economy.

The index measuring Americans short-term expectations for income, business and the job market rose to 83.8 from 81.9 in December.

Consumers’ view of current conditions jumped to 161.3 from 147.2 the previous month.

Despite the uptick in confidence, consumers’ intent to purchase homes, autos and big-ticket items declined modestly.

Last week, a government report showed that the economy expanded at a surprisingly strong 3.3% annual pace in the final three months of last year. Solid consumer spending propelled the growth, capping a year that had begun with widespread expectations of a recession but instead produced a healthy expansion.

Americans stepped up their spending at retailers in December, closing out the holiday shopping season and the year on an upbeat tone and signaling that people remain confident enough to keep spending freely.

America’s employers posted 9 million job openings in December, an increase from November and another sign that the U.S. job market remains resilient despite the headwind of higher interest rates.

The number of openings was up from November’s 8.9 million, which itself was revised up in Tuesday’s report from the government. Job openings have gradually but steadily declined since peaking at a record 12 million in March 2022. But they remain at historically high levels: Before 2021, monthly openings had never topped 8 million.

Still, in a cautionary sign, layoffs rose in December. And the number of Americans quitting their jobs — a sign of relative confidence in their ability to find a better position — dipped to the lowest level since January 2021.

The U.S. economy and job market have remained surprisingly durable despite sharply higher interest rates, which have led to higher borrowing rates for consumers and businesses. The Federal Reserve’s policymakers raised their benchmark interest rate 11 times between March 2022 and July 2023, bringing it to a 23-year high of around 5.4%.

The Fed wants to see the job market cool from the red-hot levels of 2021 and 2022, thereby reducing pressure on businesses to raise pay to attract and keep staff — and to pass on those costs to customers through higher prices.

Higher rates have contributed to a slowdown in hiring, though the pace of job growth remains relatively healthy: U.S. employers added 2.7 million jobs last year, down from 4.8 million in 2022 and a record 7.3 million in 2021. When the government issues the January employment report on Friday, it is expected to show that employers added a solid 177,000 jobs, according to a survey of forecasters by the data firm FactSet.

The job market is cooling in a mostly painless way — through fewer openings. Despite a wave of high-profile layoffs, the number of job cuts across the economy remains relatively low.

The unemployment rate has come in below 4% for 23 straight months, the longest such streak since the 1960s. And the number of people applying for unemployment benefits — a proxy for layoffs — has remained unusually low.

At the same time, while inflation has sharply slowed after peaking in mid-2022, it remains above the central bank’s 2% target.

The Fed has signaled that it expects to reverse course and cut rates three times this year, though it’s set to leave rates unchanged after its latest policy meeting ends Wednesday. Financial markets have been anticipating the first rate cut as early as March, though continued strength in the job market might make the Fed’s policymakers wary of acting before mid-year.

“These data — which show demand for workers remains robust — do not support imminent rate cuts,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “They support a cautious approach going forward, so that policymakers can be sure that inflation” will reach their 2% target.

The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a trend sure to be welcomed at the White House as President Joe Biden seeks re-election in a race that could pivot on his economic stewardship.

Friday’s government report showed that prices rose just 0.2% from November to December, a pace broadly consistent with pre-pandemic levels and barely above the Fed’s 2% annual target. Compared with a year ago, prices increased 2.6%, the same as in the previous month.

Excluding volatile food and energy costs, prices also rose just 0.2% from month to month. And compared with a year earlier, so-called “core” prices climbed 2.9% in December — the smallest such increase since March 2021. Economists consider core prices a better gauge of the likely path of inflation.

Friday’s mild inflation data arrived a day after government figures showed that the economy expanded at a surprisingly strong 3.3% annual pace in the final three months of last year. Solid consumer spending propelled the growth, capping a year that had begun with widespread expectations of a recession. Instead, the economy grew 2.5% in 2023, up from 1.9% in 2022.

Biden’s Republican critics have sought to highlight what had been the biggest inflation spike in 40 years, for which they have largely blamed the president’s spending policies. But with inflation having dropped sharply after an extended period of gloomy consumer sentiment, Americans are starting to show signs of feeling better about the economy. A measure of consumer confidence by the University of Michigan, for example, has jumped in the past two months by the most since 1991.

The latest data suggests that the economy is achieving a difficult “soft landing,” in which inflation falls back to the Fed’s 2% target without a recession. That outcome could make it easier for the Fed to consider cutting its key interest rate, which it raised 11 times since March 2022 to attack inflation.

Higher interest rates have throttled home and auto sales by raising the cost of borrowing. Businesses have also chafed under the higher interest rates.

In December, the Fed’s policymakers projected that they would carry out three quarter-point rate cuts this year. Yet they provided little hint of when the first cut might occur. Late last year, Wall Street traders had bet that the first rate cut would occur in March.

Several Fed officials, though, have pushed back against such assumptions. Christopher Waller, an influential figure on the Fed’s Board of Governors, last week reiterated his view that inflation is on track to return to the Fed’s 2% goal. But Waller cautioned that any decision to cut rates should be “carefully calibrated and not rushed” — remarks that were widely interpreted as downgrading the likelihood of a March cut.

Many economists credit the Fed’s sharp rate hikes — which boosted its benchmark rate from near zero to about 5.4% after the most recent hike in July — with cooling demand and helping slow inflation.

Rate cuts by the Fed, conversely, would eventually lead to lower borrowing costs for consumers and businesses.

Friday’s price data showed a lower level of inflation than did the most recent consumer price index, released earlier this month, which showed inflation at 3.4% in December. The more widely known CPI shows higher inflation than the Fed’s preferred measure partly because it puts greater weight on housing and rents, whose prices are higher than for many other goods and services.

During 2023, inflation fell steadily as global supply chains recovered from pandemic-era disruptions and more Americans came off the sidelines to take jobs, which helped slow wage growth. Slower-rising pay eases the pressure on businesses to raise prices to offset higher labour costs. According to the Fed’s preferred measure, inflation peaked at 7.1% in June 2022.

Payroll employment continued to erode in November, according to new data from Statistics Canada.

The national statistical agency reported that employment numbers dropped by 88,300 workers in November, although the bulk of this was driven by a strike in Quebec’s education sector. Excluding the strike’s impact, employment was down by 25,300 in November, following a drop of 24,000 the previous month.

Alongside education, employment dropped in seven other sectors, including retail trade, accommodation and food services, and wholesale trade. Declines were partly offset by gains in the health care and social assistance, and public administration, sectors.

StatsCan also reported that job vacancies edged higher in November, after a series of monthly declines. Despite the uptick, the number of vacancies was down by 34.9% from a peak in May 2022.

The combination of a decline in employment and an increase in vacancies resulted in total labour demand remaining flat from the previous month. For the year-to-date, total demand was down 0.2%, StatsCan noted.

Alongside the results in labour demand, average weekly earnings rose by 0.6% in November, StatsCan said.

On an annual basis, average weekly earnings increased by 4.1% in November, following a 3.9% increase in October, it reported.

The U.S. economy grew at an unexpectedly brisk 3.3% annual pace from October through December as Americans showed a continued willingness to spend freely despite high interest rates and price levels that have frustrated many households.

Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated from its sizzling 4.9% growth rate the previous quarter. But the latest figures still reflected the surprising durability of the world’s largest economy, marking the sixth straight quarter in which GDP has grown at an annual pace of 2% or more.

Consumers, who account for about 70% of the total economy, drove the fourth-quarter growth. Their spending expanded at a 2.8% annual rate, for items ranging from clothing, furniture, recreational vehicles and other goods to services like hotels and restaurant meals.

The GDP report also showed that despite the robust pace of growth in the October-December quarter, inflationary measures continued to ease. Consumer prices rose at a 1.7% annual rate, down from 2.6% in the third quarter. And excluding volatile food and energy prices, so-called core inflation came in at a 2% annual rate.

Those inflation numbers could reassure the Federal Reserve’s policymakers, who have already signalled that they expect to cut their benchmark interest rate three times in 2024, reversing their 2022–2023 policy of aggressively raising rates to fight inflation. Some economists think the Fed could begin cutting rates as early as May.

Nathan Sheets, global chief economist at Citi, said that recent experience suggests that economic growth can remain solid even as inflation cools.

“It underscores for the Fed that they don’t have to be in a hurry” to ease borrowing rates to aid the economy, said Sheets, who thinks the first rate cut will occur in June.

The state of the economy is sure to weigh on people’s minds ahead of the November elections. After an extended period of gloom, Americans are starting to feel somewhat better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect voters’ decisions. A measure of consumer sentiment by the University of Michigan, for example, has jumped in the past two months by the most since 1991.

There is growing optimism that the Fed is on track to deliver a rare “soft landing” — keeping borrowing rates high enough to cool growth, hiring and inflation yet not so much as to send the economy into a tailspin. Inflation touched a four-decade high in 2022 but has since edged steadily lower without the painful layoffs that most economists had thought would be necessary to slow the acceleration of prices.

The economy has repeatedly defied predictions that the Fed’s aggressive rate hikes would trigger a recession. Far from collapsing last year, the economy accelerated — expanding 2.5%, up from 1.9% in 2022.

“Our expectation is for a soft landing, and it looks like things are moving that way,’’ said Beth Ann Bovino, chief economist at U.S. Bank. Still, Bovino expects the economy to slow somewhat this year as higher rates weaken borrowing and spending.

“People are going to get squeezed,’’ she said.

The economy’s outlook had looked far bleaker a year ago. As recently as April 2023, an economic model published by the Conference Board, a business group, had pegged the likelihood of a U.S. recession over the next 12 months at close to 99%.

Even as inflation in the United States has slowed significantly, overall prices remain nearly 17% above where they were before the pandemic erupted three years ago, which has exasperated many Americans. That fact will likely raise a pivotal question for the nation’s voters, many of whom are still feeling the lingering financial and psychological effects of the worst bout of inflation in four decades. Which will carry more weight in the presidential election: The sharp drop in inflation or the fact that most prices are well above where they were three years ago?

The Fed began raising its benchmark rate in March 2022 in response to the resurgence in inflation that accompanied the economy’s recovery from the pandemic recession. By the time its hikes ended in July last year, the central bank had raised its influential rate from near zero to roughly 5.4%, the highest level since 2001.

As the Fed’s rate hikes worked their way through the economy, year-over-year inflation slowed from 9.1% in June 2022, the fastest rate in four decades, to 3.4% as of last month. That marked a striking improvement but still leaves that inflation measure above the Fed’s 2% target.

The progress so far has come at surprisingly little economic cost. Employers have added a healthy 225,000 jobs a month over the past year. And unemployment has remained below 4% for 23 straight months, the longest such streak since the 1960s.

The once red-hot job market has cooled somewhat, easing pressure on companies to raise pay to keep or attract employees and then pass on their higher labor costs to their customers through price hikes.

It’s happened in perhaps the least painful way: Employers are generally posting fewer job openings rather than laying off workers. That is partly because many companies are reluctant to risk losing workers after having been caught flat-footed when the economy roared back from the brief but brutal 2020 pandemic recession.

“Businesses are getting rid of job openings, but they’re holding onto workers,” Bovino said.

Another reason for the economy’s sturdiness is that consumers emerged from the pandemic in surprisingly good financial shape, partly because tens of millions of households had received government stimulus checks. As a result, many consumers have managed to keep spending even in the face of rising prices and high interest rates.

Some economists have suggested that the economy will weaken in the coming months as pandemic savings are exhausted, credit card use nears its limits and higher borrowing rates curtail spending. Still, the government reported last week that consumers stepped up their spending at retailers in December, an upbeat end to the holiday shopping season.

Credit card balances and rates were at record highs even before the recent solid holiday shopping season. And buy-now-pay-later plans, which let shoppers break up the cost of an item over time, have spiked.

After an extended period of gloom, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect President Joe Biden’s political fortunes.

A measure of consumer sentiment by the University of Michigan has jumped in the past two months by the most since 1991. A survey by the Federal Reserve Bank of New York found that Americans’ inflation expectations have reached their lowest point in nearly three years. And the same survey, released last week, found that the proportion who expect their own finances to improve a year from now is at its highest level since June 2021.

Economists say consumers appear to be responding to steadily slower inflation, higher incomes, lower gas prices and a rising stock market. Inflation has tumbled from a peak of around 9% in June 2022 to 3.4%. According to the Federal Reserve’s preferred price gauge, inflation has reached the Fed’s annual 2% target when measured over the past six months.

What’s more, paycheques have outpaced inflation over the past year, thereby easing Americans’ adjustment to a higher cost of living. Weekly earnings for the typical worker — halfway between the highest and lowest earners — rose 2.2% last year after adjusting for inflation, the government reported last week. By that measure, inflation-adjusted pay is 2.5% higher than before the pandemic.

“While falling inflation took some time to feed through to consumer sentiment, it appears the good news is finally getting through,” said Grace Zwemmer, an analyst at Oxford Economics.

Even with the steady slowdown in inflation, prices are still nearly 17% higher than they were three years ago, a source of discontent for many Americans. Though some individual goods are becoming less expensive, overall prices will likely remain well above their pre-pandemic levels.

That dichotomy — a rapid fall in inflation with a still-elevated cost of living — will likely set up a key question in the minds of voters, many of whom are still feeling the lingering financial and psychological effects of the worst bout of inflation in four decades. Which will carry more weight in the presidential election: The dramatic decline in inflation or the fact that most prices are much higher than they were three years ago?

Consider the price of food, one of the items people encounter most frequently. Grocery inflation has plummeted from a year-over-year peak of 13.5% in August 2022 to just 1.3%. Yet a typical basket of groceries still costs 20% more than it did in February 2021, just before inflation began to accelerate. On average, chicken prices are up 25%. So, too, is bread. Milk is 18% more expensive than it was before the pandemic.

The cost to rent an apartment has also soared and is still rising faster than before the pandemic. Rental costs are up 6.5% from a year earlier, nearly twice the pre-pandemic pace. At their peak in early 2023, rents were rising nearly 9% annually.

Sharply higher costs for such necessities as food and rent still represent a heavy burden for people like Romane Marshall, a 30-year-old software engineer who lives on the outskirts of Atlanta.

In late 2020, Marshall took computer coding classes to try to move beyond the warehouse and customer service jobs he had previously held. When he was hired by a professional services consulting firm in April 2021, he was “ecstatic.” After he completed an apprenticeship program the next year, his pay jumped from $50,000 to $60,000.

Yet his expenses kept rising, too. When he moved to a new apartment to be closer to work as his company shifted from full-time remote work to a hybrid schedule, his rent doubled to $1,475 a month, from the $700 he’d paid for a room in a friend’s house.

Marshall says his typical grocery bill is now about $120 to $130, up from just $70 to $80 three years ago. To keep his electricity costs down, he only occasionally turns on the heat in his apartment.

“There have been some positive changes, it’s just that things got expensive,” he said. “The only thing I notice is that the price of food is still high.”

Some Americans do have a cheerier outlook now. Hiring has remained solid, with the unemployment rate remaining below 4% for nearly two years, the longest such stretch since the 1960s.

Dana Smith, a software developer, says she’s optimistic that the economy is improving. He and his wife have both received pay raises that have helped offset the price spikes of the past three years.

Smith, 40, lives in Matthews, North Carolina, about a half-hour from Charlotte, where he and his wife bought a home about three years ago. It has since risen about 30% in value, boosting their household wealth.

“My perception,” he said, “is that the economy is getting better and better.”

The public’s growing optimism about the economy could point to newfound enthusiasm for Biden’s candidacy this year, after weak polling has defined much of his time in office. Still, Ryan Cummings, an economist who has analyzed consumer confidence and how it’s affected by political views, cautioned that politics might limit how much public sentiment can improve.

Americans’ economic outlooks, he said, are increasingly driven by political partisanship rather than by the economy’s underlying performance.

“As the election goes on,” Cummings said, “and it becomes more clear that the 2024 race will be Trump vs. Biden, Republicans might dial up their pessimism more than Democratic sentiment is increasing, pulling sentiment back down, regardless of economic fundamentals.”

The University of Michigan survey found that consumer sentiment among Democrats jumped a sharp 11.8% in January, the second-largest such increase on record. (The biggest increase among Democrats occurred immediately after Biden’s presidential victory in 2020.)

Many Americans might still favour having the government take steps not only to slow inflation but also to try to reduce overall prices to where they were before the pandemic. In a classic 1997 research paper, the Nobel Prize-winning economist Robert Shiller found that two-thirds of respondents to a survey he conducted agreed that the government should try to reverse a 20% spike in prices.

Economists, though, uniformly caution that any attempt to do so would require a significant weakening of the economy, resulting from either sharp interest rate hikes by the Fed or tax increases. The likely consequence could be a recession that would cost millions of jobs.

David Andolfatto, an economist at the University of Miami and a former Fed economist, said it is better for wages to rise over time to allow people to adjust to higher prices.

“The cost of living is higher, the wages are higher,” he said. “Let’s just move ahead. There’s no need for (the government) to bring the price level back down. It would be too painful.”

Claudia Sahm, founder of Sahm Consulting and also a former Fed economist, acknowledged that “people are angry” about higher prices.

“But then, the next question is, can you afford it?” she asked. “Not everybody can say yes to that question. But over time, more and more people will be able to say yes.”

With files from Josh Boak

With much of the pain of higher interest rates still to come, the economic suffering will not be shared equally: Provinces with more interest-sensitive economies, such as Ontario and British Columbia, will be hit harder in 2024, while commodity producers, like Alberta, should be in a better shape, according to Desjardins Group economists.

In a new report, the firm said that, while it is forecasting a slowdown across Canada in the year ahead, provincial economic performance is set to vary widely.

“The Canadian provinces most exposed to housing and other interest‐rate‐sensitive sectors will feel the coming economic downturn most acutely, whereas commodity producers will be less vulnerable,” it said.

In particular, B.C. will be among the provinces hit harder as the effects of high rates continue to flow through the economy, given that its households are among the most heavily indebted, and its economy is most closely tied to housing.

“Weak labour market and retail sales data released since our last provincial outlook continued to point to an economy particularly impacted by the accumulated effects of higher borrowing costs,” the report said. It added that slower growth in China could also weigh on B.C.

Ontario’s economy is also expected to suffer a harder hit from the impact of elevated rates.

“Despite surging population growth, household consumption fell, which is unusual outside recessions,” the report said.

“At the same time, residential investment plunged,” it said. “Both components should continue to struggle under the weight of sharply higher interest rates in early 2024.”

Conversely, oil producers, such as Alberta and Newfoundland, should avoid the worst of the pain.

In fact, Newfoundland is seen leading the way in 2024, as “oil production is set to rise significantly in 2024 with the Terra Nova offshore field on track to return to full production after a multi‐year shutdown,” the report said.

Similarly, Alberta is expected to have one of the strongest provincial economies this year, as oil production is ramping up, and “[t]he outlook remains strong outside the oil and gas sector,” it said.

Quebec is also expected to rebound this year — following a weak 2023 — amid stronger homebuilding activity, rebounding hydro exports, and an end to labour disruptions in the province.

“We’ve revised Quebec’s growth forecast meaningfully higher for the year 2024,” the report said. “This largely reflects a bounceback effect, as the public-sector workers that were on strike at the end of 2023 returned to work in January.”

Canada is probably not in a recession, but it will be soon, Desjardins Group economists say. But it also doesn’t matter, as the economy is rebalancing and whether it falls into recession is mostly academic, according to a report.

“As of the end of the third quarter of 2023, Canada was likely not yet in a recession,” the Desjardins report said, noting that the data for the fourth quarter point to a modest gain in real GDP.

However, the economy is expected to fall into recession in the first half of this year, as the lagging impact of tighter monetary policy weighs more heavily on consumption, it noted.

“Having not yet felt the full impact of the rate hikes in 2022 and 2023, the Canadian economy will increasingly be weighed down by them,” it said, adding that a weaker U.S. economy will also weigh on trade.

“Together, these factors suggest to us that a mild recession is likely in the near term,” it said. “And along with the trend decline in inflation, this should prompt rate cuts, likely starting this spring in Canada.”

Ultimately, debating whether the economy is in recession or not “is a mostly futile debate among purists,” the report said. The Canadian economy “is in a rebalancing process that still has further to run,” it said.

“If things get ugly, the Bank of Canada has plenty of room to respond. But neither would it be responsible to pretend that the worst for the economy was left behind us in 2023.”