The global economy is expected to gain momentum over the next couple of years, although inflation is weakening, says Scotia Economics in a new report.
In its latest forecast, the firm is nudging its gross domestic product (GDP) growth call for Canada this year a tick higher from 1.6% to 1.7%, following a stronger-than-expected gain in the third quarter. Its forecast for 2014 and 2015 remains unchanged (at 2.2% and 2.5%, respectively).
Looking ahead to the next couple of years overall, Scotia says that it expects the global economy to build momentum gradually, with every region contributing to the improving prospects for 2014 and 2015. It sees global GDP growth edging up from 2.9% in 2013 to 3.5% in 2014 and 3.6% in 2015. While its basic outlook has not changed, the firm says “the continuing unevenness of the economic reports from around the world highlights the persistent difficulty that many countries — both in the advanced and emerging market regions — are having in generating and sustaining traction.”
At the same time, it notes that inflation pressures continue to moderate around the world, which presents another set of challenges to government, businesses, and households. “Yet, there are some indications that turnarounds are emerging,” it says, citing recent data improvements in Ireland, Mexico, and China, along with positive signs in the U.S.
“Canada continues to show signs of piggybacking on the U.S. recovery,” it says. “Nonetheless, the pace of growth internationally remains on the softer side. There is no shortage of hurdles that are preventing the global economy from re-establishing a stronger growth trajectory.”
Indeed, Scotia is lowering its inflation forecasts in quite a few countries. “The moderation in price trends is especially visible in the advanced economies,” it says, adding that the exception is Japan.
“There are a number of factors, both structural and cyclical, that should continue to reinforce the disinflationary trends. There is still too much excess capacity internationally that is reshaping productive capabilities,” it says, noting that this is helping force adjustments to labour costs, and commodity prices have retreated too. Inflation is generally stronger in emerging markets.
“Looking ahead, the diverging inflation trends between the advanced and emerging market economies should eventually stabilize and begin to reverse. Expectations for a gradual acceleration in price trends, particularly among the advanced economies, and a gradual but steady upturn in longer-term borrowing costs, are contingent upon a sustained strengthening in activity around the world,” it concludes.