Economists at the Bank of Nova Scotia are cutting their forecast for U.S. gross domestic product (GDP) growth this year, and trimming their Canadian call as a result too.
In a new report, Scotia Economics lowers its forecast for U.S. GDP growth this year from 3.0% to 2.6%, citing a weaker-than-expected performance in the first quarter “exacerbated by weather, transportation and production disruptions.”
In turn, this slower start to the year is also leading it to revise its forecast for Canadian output growth down too, albeit by just 0.1 percentage points. This trims the growth forecast from 1.9% to 1.8%.
The firm says it continues to expect the U.S. economy to pick up steam over the remainder of the year, “with consumer spending and housing activity well supported by strengthening job and income gains, cheaper gasoline prices, low borrowing costs, and rising stock market pricing and home values.”
This expected strengthening in U.S. demand, coupled with a more favourable exchange rate, is expected to bolster the Canadian economy by supporting “an export-led pickup in industrial activity later in the year,” Scotia says.
But the report also cautions that “lacklustre employment and wage gains will likely continue to restrain retail and housing activity, particularly in oil-producing regions.”
While the U.S. dollar has weakened recently, and the loonie has gained a bit, “there remains considerable volatility in the outlook for currencies,” notes the report.
If, as it expects, a stronger U.S. economic rebound materializes, it says this “would reinforce a monetary policy divergence, lead to higher U.S. borrowing costs, and a renewed strengthening in the U.S. dollar.”