2025-2029 Surrey Financial Plan

ECONOMIC OVERVIEW

INTERNATIONAL Due to retreating inflation, central banks around the world began trimming their key interest rates over the last year. Central bankers took a cautious approach and gradually cut interest rates in small increments with periodic pauses to monitor the effects of their monetary policy adjustments. The monetary authorities were concerned that trimming interest rates too quickly would rekindle inflation. Despite policy interest rate cuts, benchmark interest rates remained higher than pre-pandemic levels. Economists caution that interest rates are not likely to return to pre-pandemic lows. Consequently, consumers and businesses will need to adapt to operating in a higher-rate environment. High inflation and high interest rates have dominated economic headlines over the last two years. Following the synchronized interest rate cuts by central banks around the globe, inflation was expected to normalize and return to pre-pandemic levels by next year. The International Monetary Fund (“IMF”) is forecasting global inflation to decline to 4.3% in 2025 and fall further to 3.6% in 2026. The Fund noted that although disinflation continues, with prices increasing at a slower rate and core goods inflation falling, service price inflation is still running above pre-pandemic levels, most notably in the United States (“US”) and Euro-area. The IMF provided an updated economic outlook in April. The global economy is forecasted to grow by 2.8% this year, a downward revision of 0.5% from January’s prediction. In 2025, the IMF forecasts the US economy advancing by 1.8%, China growing by 4.0%, and a slower expansion of 1.4% and 1.1% for Canada and the United Kingdom (“UK”) respectively. The Fund forecasts the European Union (“EU”) economy to lag behind with subdued growth of 0.8% this year. The most notable downward growth adjustment by the IMF was to the US economy which saw a 0.9% drop. China and Canada’s growth was trimmed down by 0.6% while the UK and European Union (“EU”) saw a smaller reduction of 0.5% and 0.2%, respectively. The new US administration, led by President Donald Trump, upended long-standing global commerce relationships by imposing tariffs against virtually all of America’s trading partners. In April, President Trump announced sweeping tariffs against dozens of countries around the world, with a baseline 10.0% tariff applied against countries that the US has a trade surplus with. Countries maintaining a trade deficit with the US will be subject to an additional targeted tariff. The US tariff announcement led to significant financial market sell offs with trillions of dollars in value lost, the worst financial market loss since March 2020. The sell off in the bond market and US dollar depreciation are signals that investors are losing confidence in the US economy. The Trump administration publicly released their formula which shows that the tariff rate is calculated by taking the US trade deficit with a given country, dividing by the country’s total exports to the US, and then dividing by two to arrive at the tariff rate. The US believes that trade deficits with other countries are due to unfair trade practices. The Americans see tariffs as sources of government revenue and as a funding source for domestic tax cuts. The targeted tariff rates ranged from 11.0% to

City of Surrey | 2025—2029 Financial Plan | Financial Overview

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