National Bank Financial is scaling back its estimate of second half U.S. GDP growth in second half to 3.3% from 4.3% due to the effects of Hurricane Katrina. And, it is dropping Canada’s GDP growth outlook for the period to 3.4% from 3.9%.

NBF notes in a new report, that Katrina will likely carry a huge price tag for insurers and the federal government with ramifications that could extend through 2006. “Looking ahead, we assume at this point that energy production will only slowly come back on stream — a scenario that could be exacerbated by Hurricane Rita,” it says.

“For the moment, we think that the recovery will be U-shaped instead of the typical V-shape observed after hurricanes,” NBF suggests. It has also upgraded its forecast for the first half of 2006 to 3.6% from 3.3%. Although, it adds, “We have raised the odds of a hard-landing to 25% this month on the premise that the current energy shock turns out to be the tipping point for the savings-deprived American consumers. This probability could increase or decline depending on the behaviour of the real-estate market.”

The report notes that, so far, Katrina’s most tangible impact on the Canadian economy has been through gasoline prices. “The Bank of Canada is confident that the economic pain will be short-lived and has resumed tightening after almost 10 months on the sidelines. Looking ahead, this pre-emptive medicine could contribute to push the loonie to higher grounds since Canada is a net exporter of energy with one of the best public balance sheet in the G-7,” it suggests.

NBF now forecasts the loonie to average US83¢ in 2006, but says it isn’t ruling out the possibility of a temporary overshoot to the US87¢ to US89¢ range in the coming weeks due to uncertainty regarding the disruption to the U.S. energy complex.

The report also notes that the Japanese economy has gained momentum. “Since world growth has so far depended mainly on two drivers, China and the U.S., this development will help support global economic growth,” it comments, noting that its GDP grew at a robust 4.6% in Q2. “More important, its recovery looks more sustainable now that it is led by business investment and consumer spending rather than government spending or exports,” it concludes.