Economists at Bank of Nova Scotia have lowered their forecasts for U.S. and European gross domestic product (GDP) growth this year, citing weak first quarter results.
Scotia cut its U.S. GDP growth forecast for 2014 from 2.6% to 2.4% following downward revisions to Q1 growth numbers. It also trimmed its Euro area forecast slightly to 1.0% from 1.1%, noting that output growth was generally weak in the region for first quarter, apart from Germany and Spain. “Of particular concern are the renewed softness in external demand and persistent sluggishness in the labour market,” it says.
Looking ahead to 2015, Scotia expects a solid rebound in consumer and business activity in the U.S. this year to carry over into next year, resulting in output growth averaging 3.2%. For Europe, its projection for 2015 is unchanged at 1.4%.
Notwithstanding these downward revisions for the U.S. and Europe, Scotia’s forecast for Canadian GDP growth is unchanged. It still expects 2.2% growth this year, rising to 2.5% in 2015, “as strengthening global growth leads to a gradual pickup in exports and business investment.”
“At the same time, sluggish job growth and increased household debt aversion are expected to keep consumer and housing activity on a moderate growth path,” it notes.
Overall, Scotia says it continues to forecast that the global economy will post slightly stronger growth for the next couple of years. Real GDP is projected to rise by an average of 3.3% in 2014, rising to 3.6% in 2015. This is up from 3.0% last year. However, it also warns that, “many factors are challenging [the global economy’s] ability to regain and sustain this expected performance.”
In this environment, the advanced economies are expected to represent a growing share of global growth, led by the UK and the U.S., it suggests. “Some of the larger emerging market and developing countries — China, Brazil, and Russia, for example — are still experiencing moderating performances in response to reduced international demand for manufactured exports, increased investor uncertainty regarding longer-term growth prospects, and the implementation of reforms to address longstanding structural issues,” Scotia says.
“Other nations are experiencing less robust conditions as key sectors, mining in the case of Chile, undergo a period of consolidation in response to oversupply conditions internationally,” it notes, adding that countries, such as Thailand and Turkey, are facing political problems that are temporarily undercutting their otherwise favourable economic fundamentals.