National Bank Financial is trimming its forecasts for global and U.S. economies.

In a new report, NBF says that it’s cutting its 2006 growth outlook for the world economy to 3.5% from 4.2% in 2005, which is the long-term average.

The brokerage firm notes that Japan is showing surprising strength, but the OECD leading indicator is signaling weakness and credit is getting tight. “Real interest rates in most industrialized countries are higher than they were in January 2003, a time when the global economy showed signs of deceleration. We consequently reiterate our caution about the outlook and see cooler growth next year,” it says.

At the same time, NBF has cut its 2005 forecast for the U.S. economy to 3.5% from 3.9%, also citing persistent weakness in the leading indicator, among other things. “The outlook for the U.S. economy remains challenging going into the second half of 2005,” it says. “With leading indicators still turning down, we have downgraded our 2005 growth forecast to 3.5% from 3.9%. Even at this reduced rate, however, the economy will be exceeding its normal speed limit.”

The Canadian economy continues to perform well on the strength of domestic demand, it notes, although it wonders how long the Bank of Canada will be able to remain patient on rates. “All in all, the data remain consistent with the Bank of Canada’s forecast of a strong domestic economy with limited spare capacity that will eventually require a reduction of monetary stimulus,” NBF says. “Though our call of a July move looks like a long shot at this time, we think this window remains open.”

“[Canadian dollar] weakness coupled with prospects of fiscal stimulus and a potential upturn in a number of beaten-down U.S. economic indicators in the coming months could lead the Bank to upgrade its conservative forecast in July,” it concludes. “Given its assumption about the current output gap (virtually nonexistent) and its concern about lack of productivity growth, it wouldn’t take much of an upgrade to prod the Bank into action in July.”