North America

outlook 2024
Old rivals return to the ballot
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NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

Old rivals return to the ballot

• “Plan B” candidates could yet come into play in the US presidential election given popularity
and legal challenges facing the leading candidates. Two governors, Gavin Newsom and
Glenn Youngkin, are ones to watch.

• Although further policy rate increases are not forecast in the US, the economy will still be
absorbing the impact of higher borrowing costs. Manufacturing investment will be among
the more resilient areas, aided by major public programmes.

• US-Canada ties will be threatened by a dispute over taxes on digital services, potentially
jeopardising future renewal of the broader United States-Mexico-Canada Agreement
(USMCA) for trade, which is central to nearshoring ambitions.
The US presidential election in November will dominate the outlook for North America next year.
The likely close rematch between the incumbent, Joe Biden, and his opponent in 2020, Donald Trump,
will be pivotal for domestic and international policy given these candidates’ sharply contrasting
views. The election will take place against a backdrop of a slowing (but not contracting) economy—
we forecast GDP expansion of 0.8% in 2024 and a moderation in inflation—and major international
challenges for the US in relation to China, the Middle East and Ukraine. Looking beyond these headline
stories, we examine three lesser-observed trends that we believe will shape North America’s outlook in
2024.

The unpopularity of leading candidates will keep Plan B options in play

Although we believe that a Biden-Trump rematch is the most likely scenario for the 2024 US
presidential election, it remains possible that at least one of those names will not be on the
ticket on Election Day. Both candidates suffer from low popularity, in part owing to their old age,

Joe Biden and Donald Trump continue to struggle with low popularity
(%, US net favourability rating)
Joe Biden Donald Trump
-10
-11
-12
-13
-14
-15
-16
-17
-18
-19
Jun Jul Aug Sep Oct
2023
Sources: FiveThirtyEight; EIU. *”Favourability” and “approval” used interchangeably for the Biden poll.

1 © The Economist Intelligence Unit Limited 2023

NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

raising doubts over their suitability to lead their parties in a high-stakes election. Meanwhile, some of
the many lawsuits against Mr Trump could disqualify him from running if they are successful, but this is
unlikely.
Identifying potential substitutes is far from intuitive. Mr Biden faces no credible Democratic
challenger, and his vice-president, Kamala Harris, is also unpopular. Mr Trump holds a commanding
lead in the Republican primary, with none of his many competitors gaining serious traction. These
include Ron DeSantis, the governor of Florida, whose campaign has fizzled, and Nikki Haley, the
former governor of South Carolina, who has polled a bit better in some early voting states. This has
moved the search for potential Plan-B candidates further afield, and we think that Mr Newsom, the
Democratic governor of California, and Mr Youngkin, the Republican governor of Virginia, will be the
most interesting to watch. Although we do not expect either governor to make a bid for the
presidency in 2024, both are likely to lay the foundation to run in the 2028 elections, for which
they will be better positioned to set the tone.
There are many reasons why Mr Newsom and Mr Youngkin—who, at 56, are a generation younger
than Mr Biden and Mr Trump—might decide against running in 2024. Serving as a surrogate for Mr
Biden, as Mr Newsom says he will do, will boost
Mr Newsom’s visibility while avoiding a potentially
Most US voters do not want a Biden-Trump
party-splitting confrontation with Ms Harris in the rematch in 2024
scenario that Mr Biden ends his campaign early. (%, total respondents who want the following candidate
to run for president again)
Mr Youngkin will be keen to avoid a clash with Mr
Trump, which would be even more challenging Yes No Not sure
0 10 20 30 40 50 60 70
as a late-entry candidate, preferring instead to
build his still-limited national profile during the Joe Biden
final two years of his gubernatorial term. These
approaches will allow both governors to
engage in low-risk shadow campaigns for Donald Trump

the presidency, clarifying their positions on

*Survey conducted on October 28th-31st 2023.
national issues without alienating key party Sources: The Economist/YouGov; EIU.
constituencies.
We believe that both governors will continue building personal brands that convey an
ability to appeal to the broad ideological spectrums of their parties while still attracting
moderates and independents. Mr Newsom has long championed a pro-business platform while
advocating for progressive priorities, including on climate change. Mr Youngkin, who gained national
recognition for winning his 2021 race in a Democratic-leaning state, has managed to cultivate the
interest of establishment Republicans and donors, despite pushing hardline policies on culture-war
issues like abortion restrictions. This big-tent model will require a difficult balancing act, which
both governors may struggle with in a highly polarised climate. However, it could become the
strategy to beat in a 2028 election, when neither Mr Biden nor the more combative Mr Trump is
likely to run.

2 © The Economist Intelligence Unit Limited 2023

NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

High interest rates will squeeze the US property market, but industry will push
ahead
Market adjustments to “higher for longer” interest rates will continue into 2024. Even if the
Federal Reserve (Fed, the central bank) is done raising interest rates, as we expect, other factors
will keep borrowing costs high in 2024, including another wave of Treasury bond issuance, a still-
strong stockmarket, and governance risks related to the politicisation of public spending and the
reinstatement of the federal debt ceiling in 2025. As some segments of the US market soften, including
real estate and consumer credit, this will increase risk premia for some borrowers.

US long-term bond yields remain volatile, despite a stable policy rate, 2023
(indexed Treasury bond yields; June 1st 2023=100)
3-month 6-month 2-year 5-year 10-year
140
June 14th: Fed July 26th: Fed September 20th: 135
keeps policy rate raises Fed keeps policy
on hold policy rate by rate on hold 130
25 basis points 125
120
115
November 1st: 110
Fed keeps policy
rate on hold 105
100
95
Jun Jul Aug Sep Oct Nov
Sources: Federal Reserve; EIU.

The commercial real estate market is particularly exposed. Property values in major urban
areas, particularly for office and multi-family real estate, have dropped noticeably in 2023. The full
extent is likely to be masked by a drop in market turnover; commercial real estate deal volumes
were down by more than 50% year on year in the first quarter, according to a real estate investment
management firm, CBRE. The National Bureau of Economic Research estimates that falling occupancy
rates in New York City office buildings since the pandemic have reduced building values by nearly 40%,
or US$453bn, in the longer run. With nearly US$1trn in commercial real estate loans coming due
in 2024-25, developers and asset holders will come under increasing strain as these loans are
moved to higher interest rates.
The broader housing market is on a firmer footing after the global financial crisis, owing to
better regulation and healthier debt/income ratios. We do not expect house prices to fall enough
to destabilise the market. However, with 30-year fixed mortgage rates hovering around 8%, these
higher borrowing costs will keep the housing market subdued in 2024 and start to limit other spending.
Household debt service payments had risen to 9.8% of disposable personal income by the second
quarter of 2023—up from a pandemic-era low of 8% and back on a par with 2019 levels—and are likely
to rise further in 2024.
The jump in credit card balances over the past year is another risk factor in 2024, as
consumer credit is one of the areas most exposed to variable (and generally high) interest

3 © The Economist Intelligence Unit Limited 2023

NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

Credit-card interest rates are rising faster than the policy rate
(basis-point change, Q1 2019=100)
Average credit-card interest rate Fed policy rate
108

106

104

102

100

98

96
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2019 20 21 22 23
Sources: Federal Reserve; EIU.

rates. We expect new borrowing to slow in 2024 as consumers rein in their spending, but delinquencies
will also rise as households struggle to meet a higher interest burden. All of this will weigh on economic
activity, and particularly consumer spending, and has influenced our forecast of a fairly steep
slowdown in growth in 2024.
On a positive note, business fixed investment is likely to be more resilient than we would
typically expect in a high interest-rate environment, particularly in industry. Non-residential
construction is moving at a robust pace, up by nearly 18% year on year as at August 2023. This is mainly
due to investment in new manufacturing capacity, which was up by nearly 66% year on year, driven by
major public investment programmes. Tax incentives will continue to draw in private investment as
companies in semiconductors, artificial intelligence and other advanced technology, renewable energy,
electric vehicles and other green tech prepare to meet strong demand over the medium term.

Private consumption will cool in 2024 after fuelling rapid growth and inflation

Contribution to annual real GDP (percentage points) Inflation and borrowing costs (%)
Private consumption Government consumption Headline inflation Fed policy rate
Gross fixed investment Net trade 10
3.0
2.5 8
2.0
1.5 6
1.0
4
0.5
0 2
-0.5
-1.0 0
2022 23 24 2021 22 23 24 25
Sources: Bureau of Economic Analysis; Bureau of Labour Statistics; EIU. *Values for Q4 2023 and onwards are EIU estimates and forecasts.

4 © The Economist Intelligence Unit Limited 2023

NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

A DST dispute is threatening a US-

The US was the leading exporter of digitally
Canada trade war delivered services in 2022
Digital service taxes (DSTs) have quickly (%)
emerged as a point of contention in North 16.5 US
9.2 UK
America, threatening to spark a US-Canada 16.5
7.6 Ireland
trade war by the start of 2024. The dispute 34.7 5.9 Germany
9.2 5.9 India
centres around Canada’s refusal to join an Total:
5.2 China
US$3.8trn
international moratorium on DSTs, organised in 7.6 4.3 Netherlands
4.2 Singapore
July 2023 by the OECD and endorsed by nearly 140 2.9 5.9
3.6 3.6 France
economies, including the US. Canada has instead 4.2 4.3 5.2 5.9 2.9 Luxemburg
34.7 Rest of world
opted to implement its own DST by January 1st
Sources: WTO; EIU.
2024. The move has prompted sharp rebuke
from the US, given that policymakers and the business community view DSTs as disproportionately
burdening US firms, and the US Trade Representative has threatened to retaliate.
We expect the US and Canada to reach a settlement to avoid immediate implementation of
the DST. This is based on our view that both sides would prefer to avoid a disruptive trade dispute with
a long-standing ally and major trade partner. We also believe that the government of the Canadian
prime minister, Justin Trudeau, will ultimately view the DST as too politically costly. Major Canadian
business lobbies oppose the tax, fearing that US retaliation would target key Canadian industries. The
tax would also make Canada a focal point of the 2024 US elections, putting the bilateral relationship
under further strain and, in the longer run, potentially jeopardising talks to renew the USMCA,
scheduled for 2026. We believe that the Trudeau government will be acutely sensitive to these
risks, particularly given its poor performance in domestic polls and strong reliance on US support
amid Canada’s ongoing diplomatic dispute with India. This should be enough to encourage a
compromise before the DST takes effect.

Nearly a quarter of OECD tax deal signatories have developed digital services taxes*

Tax status
Enacted
Drafted
Announced/intend
to implement

Sources: OECD; KPMG; EIU. *Includes other similar direct taxes.

5 © The Economist Intelligence Unit Limited 2023

NORTH AMERICA OUTLOOK 2024
OLD RIVALS RETURN TO THE BALLOT

However, such a settlement would most likely be temporary, and we expect that the issue
would re-emerge by the end of 2024. By then the international moratorium, which we believe
Canada would join, is set to expire. The signatory countries are also supposed to have ratified by then
an international treaty developed by the OECD to co-ordinate the taxation of digital services and
replace unilateral DSTs. Although the Biden administration has signalled support for the treaty, which
is still under development, ratification would be impossible in the current Congress, as Republicans
oppose it.
What happens next depends on the outcome of the 2024 US elections. Although Democrats
probably will not win enough seats in Congress to guarantee ratification, we would expect a
Democratic president to negotiate for another extension of the moratorium at least to buy time. In
contrast, a Republican president would most likely exit the US from the OECD-led process. This would
kill the treaty’s credibility, given that the US is the world’s largest exporter of digitally delivered services,
and would probably prompt Canada and other countries to implement their own DSTs. In a worst
case scenario, the US would retaliate, including in areas outside digital services trade, resulting
in a multi-front trade war that would implicate many countries and industries.

6 © The Economist Intelligence Unit Limited 2023

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rights reserved. Neither this publication nor any part
of it may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise,
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Intelligence Unit Limited.

While every effort has been taken to verify the

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Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.