1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 6
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
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Several key issues will affect the economy and markets over the coming quarters.
Consumption resilience in advanced economies is at risk of a correction in equity market
strength built on yet-unproven AI-optimism, but U.S. households could get a boost from
stimulus cheques. A new face at the Fed may contest the bank’s independence from the
executive branch, further weakening the perception of U.S. institutional strength.
The global economic outlook remains challenged by the ongoing impacts of U.S. trade policies
and associated uncertainty. In the United States, there is mounting evidence that the goods
economy is flagging, while in Canada, the economy is struggling to adapt to the evolving trade
situation. In China, the economy remains hobbled by weak domestic demand as policymakers
continue to engineer a surge in the trade surplus. That surge is heavily affecting industrial Europe,
which also remains challenged by weak domestic demand. In Latam, uncertainty will remain the
constant as ongoing external risks combine with regional elections, fiscal challenges, and difficult
balancing acts for local central banks.
Massive tech related spending masks muted U.S. GDP growth
YoY % change, 1Q-3Q25
45%
41.0%
32.4%
30%
16.4%
15%
10.4%
2.1%
1.5%
GDP
GDP minus
(1)+(2)+(3)
0%
Computers &
peripherals (1)
Data
centres
(2)
Software
(3)
(1)+(2)+(3)
Source: Bureau of Economic Analysis, Scotia Wealth Management.
Major uncertainties remain with respect to the way forward in the U.S. These include the future
of trade policy, the performance of the industrial sector, the path for inflation, or the evolution of
equity markets. Personal spending in the world’s largest economy has been buoyed by strength
in financial markets, despite muted job creation and dampened confidence during the first year
of Trump’s second term. AI-related strength in equities has also been accompanied by a surge in
associated capital expenditures that have supported aggregate GDP growth readings in the
country. Investors may soon ask for results, leaving the AI-boosted economy at risk if these
disappoint or take longer to become evident. As things stand, we expect the U.S. economy will
slow from around 2% in 2025 to 1.6% in the current year, with only modest support coming via
two more Federal Reserve rate cuts in 1H26.
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