{"id":306892,"date":"2025-10-16T02:16:16","date_gmt":"2025-10-16T02:16:16","guid":{"rendered":"https:\/\/www.europesays.com\/us\/306892\/"},"modified":"2025-10-16T02:16:16","modified_gmt":"2025-10-16T02:16:16","slug":"be-prepared-for-interest-rates-to-start-rising-in-late-2026-desjardins-chief-economist","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/306892\/","title":{"rendered":"Be prepared for interest rates to start rising in late 2026: Desjardins\u2019 chief economist"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Jimmy Jean, chief economist Desjardins poses outside their offices in Montreal, Quebec, May 5, 2021.Christinne Muschi\/Christinne Muschi\/The Globe and<\/p>\n

While economic conditions remain below trend, next year is expected to be a turning point for the economy. Jimmy Jean, chief economist and strategist at Desjardins Group, forecasts 1.2 per cent real GDP growth in 2025, rising to 1.5 per cent in 2026. However, he argues that the economy remains \u201cfragile\u201d and in a report published on Sept. 25, he warns that, \u201cdownside risks remain ever present with the U.S. administration capable of turning trade on its head again with little notice.\u201d <\/p>\n

On Oct. 9, I spoke with Mr. Jean for a two-part interview to discuss his latest economic forecasts and what they could mean for equity investors. In part one, featured below, Mr. Jean provides an update on his outlook for interest rates and the Canadian dollar and discusses Budget 2025, CUSMA renegotiations and potential risks to his economic forecasts. In part two of this interview that will be published later this week, Mr. Jean shares his views on where markets are headed, what to watch for this earnings season, weighs in on the AI bubble debate, and discusses what he considers to be the best investment for portfolio protection.<\/p>\n

You are forecasting a 25-basis point cut will be announced by the Bank of Canada later this month with another 25-basis point cut announced in December taking the overnight rate down to 2 per cent, where you believe it will remain for the next year. What leads you to this call? <\/b><\/p>\n

There are a couple of reasons. I think the state of the Canadian economy is currently fragile. Of course, there\u2019s the impact from tariffs. But more generally, I think there\u2019s uncertainty around trade policy and the inherent impact on the Canadian economy. So, you\u2019re seeing business investment and intentions being affected, and lately, we have seen some worrying signs in the labour market. Also, there are diminishing risks of runaway inflation given that the Carney government reduced its retaliatory tariffs. All these things taken together, I think, warrant the Bank of Canada providing a little bit of accommodation. Right now, they\u2019re still in neutral territory but performing two rate cuts would bring them to a mild accommodative stance by the end of the year. <\/p>\n

You\u2019re expecting a 25-basis point rate hike by the Bank of Canada in the fourth quarter of 2026 and believe the overnight rate can rise to 2.75 per cent in 2027. Why are you forecasting a hike a year from now? <\/b><\/p>\n

In 2026, we have an economic forecast that has a bit of acceleration that\u2019s largely fueled by government spending and investment as it relates to defense and infrastructure, in particular. We\u2019ve been talking about weak productivity and weak potential growth, which means that there\u2019s not a whole lot of excess capacity in the economy. So, when that spending starts to kick in, we think the Bank of Canada will see a reason to move back into slightly neutral territory with fiscal policy taking over monetary policy and supporting the economy. The Bank of Canada will want to keep potential inflationary pressures in check and move back to neutral territory. So, we forecast a brief period where the Bank of Canada is likely to be accommodative before returning to a more or less neutral stance in a very gradual fashion with just one hike in 2026 and then a couple of hikes in 2027. <\/p>\n

What are your thoughts on the upcoming release of the federal budget and key implications for the economy?<\/b><\/p>\n

They\u2019re massive and that\u2019s intended. <\/p>\n

A lot has been put forward as it relates to defense spending through higher wages and also hiring more personnel in the defense sector largely but there\u2019s going to be a part that\u2019s going to be in infrastructure for the defense industry, so new air fields, hopefully roads that could help defend the Arctic while at the same time leveraging critical minerals, things like that. I think that part might be later down the road, but that\u2019s going to be a big chunk. <\/p>\n

Also, they\u2019ve presented those five nation-building projects that are going to be affecting the economy over a significant a significant period of time. In the whole spirit of accelerating those rollouts, we expect that to have an impact on the economy in 2026. <\/p>\n

And there\u2019s also support that they have already announced for businesses to be able to shift towards other markets to counter tariff effects. At this point, we don\u2019t know if there\u2019s going to be more of that but that wouldn\u2019t surprise me to see, including incentives for business investment. The U.S. came out with the One Big Beautiful Bill that has immediate expensing of capital expenditures, machinery and equipment, software and things like that. They already had that but they prolonged it. In Canada, we have a similar measure but it\u2019s only targeted to certain components like advanced manufacturing, clean tech, it\u2019s not as broad as it is in the U.S., and it also has sunset clauses, whereas in the U.S. it\u2019s more permanent. So, it could be broadened and last longer.<\/p>\n

Right now, I think there\u2019s a concern that Canada might be at a fiscal disadvantage. We\u2019ll be looking very attentively whether there are some measures to address that to avoid giving the signal that the U.S. is a preferential place to operate in because that\u2019s very much what President Trump wants. <\/p>\n

The hope would be to make it very fiscally advantageous to be deploying investments. And that\u2019s important at this stage of where we are in this new administration because the instinct of businesses is to hold back on investments, given the very high tariff uncertainty, and we saw a significant decline in business investment in the second quarter. So, you want to provide another incentive to say, you should be investing, you should be looking through that and we\u2019re going to help you do that. And it\u2019s very important because our long-standing productivity lag versus the U.S., or even in the G7, stems from insufficient investment per worker. The U.S. invests two and a half times the amount that Canadian companies do in terms of investment per worker and that\u2019s why they outperform in terms of productivity and competitiveness so I think that\u2019s a key priority if we want to get the private sector to drive productivity in this next cycle.<\/p>\n

So, it\u2019s going to be a consequential budget on many dimensions. I haven\u2019t talked about the deficit and debt deterioration, how that\u2019s going to be perceived by investors, but it\u2019s going to be a fine balancing act for Prime Minister Carney and Finance Minister Champagne. <\/p>\n

You are calling for slow economic improvement in Canada with your real GDP forecasts of 1.2 per cent in 2025 and 1.5 per cent in 2026. You see inflation risks coming down. Could the CUSMA renegotiations be a major risk to your economic outlook? <\/b><\/p>\n

It\u2019s definitely one of the top risks we have out there. <\/p>\n

Despite protections from CUSMA (Canada-United States-Mexico Agreement), in recent weeks, we have seen Donald Trump make announcements that go in the direction of diminishing those protections, so overlaying some tariffs based on national security considerations in some sectors that override the tariff-free status that CUSMA provides. <\/p>\n

The challenge will be for Canadian negotiators to protect exporters from a broadening of tariffs as much as possible. Obviously, that is going to require some concessions, very likely in the dairy sector, but also in terms of how Canada deals with the digital giants. Also, they\u2019ve talked about investments in the U.S. and that\u2019s certainly been the blueprint. For example, when you look at deals that were done with the U.K., Europe or Japan, it almost always includes some element of those countries either buying goods or investing in the U.S. and we saw Prime Minister Carney talk about that. Now, whether it\u2019s new money or investments that are already being made that\u2019s going to be interesting to see. It could be very challenging to get to an agreement given President Trump\u2019s stance.<\/p>\n

You said that CUSMA renegotiations are one of the top risks to your economic forecasts. What are the other key risks? <\/b><\/p>\n

A source of uncertainty, right now, is the direction of immigration policy. <\/p>\n

For some businesses that rely heavily on foreign workers the parameters of the policies have a significant impact on their ability to operate, especially for those businesses that are in smaller communities where it\u2019s difficult to get Canadians to perform some jobs, whether in manufacturing or in agriculture. Some businesses are now in a position where they can\u2019t renew their current temporary workers\u2019 contracts. And some of those CEOs are telling me if they don\u2019t have access to that labour, they are going to have to close. Then, not only will the immigrants lose their jobs but Canadians that are currently employed will too because businesses won\u2019t be able to operate.<\/p>\n

I think the government is still studying how to adjust its policies to try to provide more certainty. But, if the program is too rigid, my concern is that we might see some businesses start to face difficulties, either shut down altogether or diminish their operations. In some cases, for businesses that export to the U.S., that would have a double whammy of high tariffs and not being able to access workers. <\/p>\n

In addition, it\u2019s diminishing relative to what it was, but you still have risks surrounding the mortgage renewal cycle. 2026 marks the point in time where those who took five-year mortgages in 2021, when mortgage rates were the lowest in the last cycle, will have to renew. Particularly for those who have high debt-to-income ratios and are renewing at higher rates, it\u2019s going to be difficult for some of them, and you might see issues in the housing market. Now, the rate cuts do help mitigate that impact. Banks have been very proactive in managing this risk. Also, the job market has held up, until a few months ago, but it has held up relatively well. It\u2019s going to be important that the job market doesn\u2019t deteriorate too much from here on in.<\/p>\n

Last month, you published a report calling for the Canadian dollar relative to the U.S. dollar to strengthen in 2026, and you have a 2026 year-end target of 75 cents. Why do you see a reversal in the current downtrend? <\/b><\/p>\n

We think the fundamentals for the U.S. dollar are still weak. <\/p>\n

We\u2019ve seen a rebound in the U.S. dollar in the last couple of months, but our FX strategists believe that was a technical bounce from the positioning that was extremely bearish on the U.S. dollar. <\/p>\n

When you look at fundamentals, be it the erosion in institutional credibility that the U.S. is suffering from, the global investor attitude as it relates to the U.S. economy and the need to hedge whatever position they have in the U.S., the inflationary risk in the U.S. into 2026, and also the attacks on the Federal Reserve independence, all those drivers, in our view, remain firmly skewed against the U.S. dollar. <\/p>\n

As well, when we look at cumulative inflows in the bond market since early 2024, for example, they have been positive. We\u2019ve seen more inflows into Canadian bonds, relatively speaking, compared to what we\u2019ve seen in the U.S. So, in this context, Canada is attractive. <\/p>\n

We think when Canadian government policies aimed at stimulating growth fall into place, and the government also wants to pull in global private investment to support its growth efforts, when all those elements are taken together, we think it\u2019s going to be a positive for the Canadian dollar. <\/p>\n

When I looked at your global economic growth forecasts, why is there a lack of economic growth forecast for emerging Asia, China and India in 2026? Your real GDP forecasts were either unchanged year-over-year or down slightly. I would have expected to see growth in these regions.<\/b><\/p>\n

We think a lot of that is due to supply chain disruptions caused by trade policy. <\/p>\n

China is still one of the most tariffed countries. There\u2019s going to attempts at transshipping, but the starting point for China was already a very fragile one domestically. They\u2019ve been struggling for a number of years. And now China, a big manufacturing juggernaut, is going to suffer a great deal under those tariffs, and we think that will spill over to other regions, some of the Chinese trading partners or alternatives to China. You look at countries like Vietnam or even India, even though there have been some semblance of agreements, they still involve tariffs, so we think the disruptions to trade are a negative for those areas. <\/p>\n

What key takeaway on the Canadian economy should readers take away from this conversation? <\/b><\/p>\n

We have recession uncertainty, but we don\u2019t have an actual recession, at least just yet.<\/p>\n

The more policymakers can effectively provide some certainty, be it on trade war, on monetary policy, on fiscal policy, or on immigration policy, the faster we see private investment dial back in and support growth on a sustainable basis. <\/p>\n

This Q&A has been edited for clarity. <\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Jimmy Jean, chief economist Desjardins poses outside their offices in Montreal, Quebec, May…\n","protected":false},"author":3,"featured_media":306893,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[2148,2138,671,104,2132,692,64,2147,2131,2143,2144,2140,2133,2130,79,407,746,2142,2137,2159,2134,2135,454,2139,1165,728,2149,108,2154,2155,2157,2152,2156,2150,2153,2136,85,2146,80,2145,2151,1458,158,1164,2141,67,132,68,1154,107,2158],"class_list":{"0":"post-306892","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-business","15":"tag-canada","16":"tag-canada-news","17":"tag-canada-sports","18":"tag-canada-sports-news","19":"tag-canada-trafficcanada-weather","20":"tag-canadian-breaking-news","21":"tag-canadian-news","22":"tag-economy","23":"tag-education","24":"tag-environment","25":"tag-federal-government","26":"tag-foreign-news","27":"tag-globe-and-mail","28":"tag-globe-and-mail-breaking-news","29":"tag-globe-and-mail-canada-news","30":"tag-government","31":"tag-life-news","32":"tag-lifestyle","33":"tag-local-news","34":"tag-manitoba","35":"tag-national-news","36":"tag-new-brunswick","37":"tag-newfoundland-and-labrador","38":"tag-northwest-territories","39":"tag-nova-scotia","40":"tag-nunavut","41":"tag-ontario","42":"tag-pei","43":"tag-photos","44":"tag-political-news","45":"tag-political-opinion","46":"tag-politics","47":"tag-politics-news","48":"tag-quebec","49":"tag-sports-news","50":"tag-technology","51":"tag-travel","52":"tag-trudeau","53":"tag-united-states","54":"tag-unitedstates","55":"tag-us","56":"tag-us-news","57":"tag-world-news","58":"tag-yukon"},"share_on_mastodon":{"url":"","error":"Validation failed: Text character limit of 500 exceeded"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/306892","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=306892"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/306892\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/306893"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=306892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=306892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=306892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}