This year once again, expectations regarding the economy were measured against reality. And this year again, reality prevailed… Here are some lessons learned over the last 12 months.
The biggest surprise this year has been the resilience of the economy. More than 400,000 jobs were created in the first nine months of the year in the country. Air Canada is raking in record revenues. Loto-Québec and the SAQ are making record profits. Traffic is breaking records at Montreal-Trudeau airport. Yes, the economy is slowing this fall. But Quebec’s unemployment rate in October was 4.9%, among the lowest levels in a quarter century. No one predicted such a scenario for the end of 2023. “The good lesson to learn from surprises is that the world is surprising,” psychologist and Nobel Prize winner in economics Daniel Kahneman once said. A quote that sums up the year that is ending well.
As soon as interest rates started to rise in 2022, analysts were scrambling to predict a rate cut in 2022 or 2023. Even in the summer of 2023, some were talking about a rapid decline. That didn’t happen. Even if reductions are likely in 2024, we are talking so far of an adjustment rather than a significant reduction in rates. The strange days when money cost almost nothing seem to be gone.
One of the surprising trends in 2023 is that wages have increased on average faster than inflation across the country. Over the past year, wages have increased by 4.8% on average, compared to a 3.1% increase in prices. So workers have generally become richer even if everything costs more. However, no one seems happy with their lot, including the people who are doing best in our society. “You drive an $80,000 van and take a vacation in Europe? You have no right to complain about inflation,” American financial author Ben Carlson recently decreed. A great rule to follow for the holiday season.
Something gave in investor psychology this fall. In the dark months of September and October, my inbox filled with depressed emails. The markets were falling every day. Inflation had started to rise again. Everyone was talking about recession. There was the Hamas terrorist attack in Israel, and the start of a new war. Many readers have given me the impression of wanting to give up everything. Some even spoke to me of “predictable declines” in the financial markets for the months to come. Well, the next month, in November, the markets were catapulted higher. November was the best month for stocks and bonds in many years. It was unpredictable, of course. That’s the lesson to be learned from all of this.
Speaking of the stock market, markets have been in growth mode in 2023. Canadian stocks were up 8% as of December 1, including dividend reinvestment. U.S. stocks were up 21%, including a 37% rise for the NASDAQ, which represents technology stocks. Even bonds have been up this year. A diversified 60% stocks, 40% bonds portfolio rose 9%, while an 80% stocks, 20% bonds portfolio was up 11%, including dividends. An investor who panicked and sold his investments in January 2023 probably now regrets having done so. I hope it wasn’t you.
Speaking of surprises, this is one: after 15 years of frenzy, the year 2023 was the year when real estate stopped releasing dopamine in our brains. The topic went from “exciting” to “neutral”. These days, buyers are discouraged by record prices and high interest rates. Sellers are betting that next year there will be a return to real estate inflation. Homeowners fear the renegotiation of their mortgage in 2024 or 2025, and the resulting increase in payments.
It was clear: the reign of the United States on the world economic scene was experiencing its final moments. The 21st century belonged to China. Who couldn’t realize that? Well, it seems the consensus was premature. According to a Brookings Institute analysis in 2023, the working-age population will fall by almost 1% per year in China by 2050, while it will increase in the United States. Considering an assumption of annual economic growth of 2% in China and 2% in the United States, the American economy would be 42% larger than that of China in 2050. However, China’s outperformance cannot be ruled out. . In short, the portrait is more nuanced than one would have believed not so long ago.
The last year has also been good for gender equality and a greater role for women in society. For example, never before have so many women occupied seats in parliaments and legislative assemblies around the world. In North America, Europe and South Africa, more than 30% of elected officials who hold seats are women, more than double what was the case 20 years ago, according to data from the Our World In website. Data. Globally, 25% of seats are held by women, up from less than 9% two decades ago. Parity has not been reached, but the trend is clear.