City of Surrey's 2024-2028 Financial Plan

ECONOMIC OVERVIEW

INTERNATIONAL High inflation and high interest rates have dominated economic headlines over the last two years. Central banks around the world responded aggressively by substantially increasing their key interest rates to rein in the rapid growth of prices. Economists had warned that high interest rates would slow down economies and trigger recessions. Despite a challenging economic environment, the global economy did not fall into recession. This is due to households’ and the major advanced economies’ abilities to draw on substantial savings that were accumulated during the pandemic. Due to signs of retreating inflation, the focus has now shifted over to the timing of interest rate cuts. Most major central banks around the world have signaled that interest rates have peaked. With inflation starting to normalize and return to targeted levels, conditions which would warrant serious consideration toward interest rate cuts this year are beginning to materialize. The International Monetary Fund (“IMF”) cautioned that central banks need to ensure that interest rates are not eased too prematurely to avoid rekindling inflation, nor delayed too long, thereby causing damage to economies and triggering a recession. Although interest rate cuts are widely expected, many economists are forecasting that interest rates will not fall to pre-pandemic lows and consumers and businesses will need to adapt to operating in a higher-rate environment. The IMF is projecting global inflation to fall to an annual average of 5.9% this year and 4.5% next year, with central banks in advanced economies returning to their inflation targets earlier than developing economies. The IMF expects inflation in developed nations to fall to 2.6% in 2024 and drop further to 2.0% in 2025. The Swiss National Bank became the first major central bank to trim its policy rate in March of this year. It is expected that other major central banks, with the exception of the Bank of Japan, will soon follow suit. Some economists are predicting that that the European Central Bank, Bank of Canada (“BOC”) and Bank of England will cut interest rates as early as June 2024. Central banks are expected to cut interest rates in smaller increments with periodic pauses to monitor the effects of adjustments to their monetary policies. The IMF expects economic growth to be muted in the next two years due to elevated borrowing costs and the withdrawal of financial support by governments. The IMF estimates that the global economy will grow at 3.2% this year. For 2024, the IMF forecasts the United States ("US") economy advancing by 2.7%, China growing by 4.6%, and a slower expansion of 1.2% and 0.8% for Canada and the Eurozone, respectively. The IMF indicated that headwinds facing the global economy include the tightening of monetary policy, withdrawal of government fiscal measures, rising geopolitical tensions in the Middle East and, the ongoing war in Ukraine. The IMF warns that further geopolitical shocks could cause additional commodity and food price increases, which will disproportionately impact developing nations more than advanced countries.

City of Surrey | 2024—2028 Financial Plan | Financial Overview

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