Scotia Economics has trimmed its global growth forecast, largely due to a worse-than-expected European recession. Yet, it’s bumping up its U.S. and Canadian growth expectations.

In a new report, Scotia says that it now expects global growth to average 3.4% in 2012, down 0.2 percentage points from its previous forecast. “The downward revision from our January 2012 forecast reflects the deepening recessions in the southern peripheral nations of the euro zone,” it says.

Also, it notes that the faster-growing emerging nations “are being constrained by both the trade shocks rippling around the world and by prior tightening moves to contain domestic inflationary pressures. This is most notable in the Asia-Pacific region where growth forecasts for China, South Korea, and Australia have moved to a lower trajectory.” India’s growth is slowing too, and a more moderate pace of rebuilding in Japan is also contributing to reduced growth momentum internationally.

Scotia is now forecasting that GDP in the eurozone will contract by about 0.5% in 2012, followed by an expansion of 0.9% in 2013.

However, it has upgraded its U.S. GDP growth call from 1.8% to 2.0% for 2012 — on stronger consumer spending and labour market conditions — and left 2013 unchanged at 2.2%. “The recovery is still expected to lose some momentum in 2012, pressured by spillover effects from Europe and ongoing deleveraging,” it says.

The improved economic momentum in the U.S., has also caused it to raise its forecast for Canadian growth this year by 0.1 percentage point to 1.9%. “The continuing buoyancy in both housing activity and business investment are encouraging. Nonetheless, consumer caution, fiscal restraint and weak export markets are expected to keep the economy in the relative slow lane into 2013,” it says. GDP growth next year is now pegged at 2.2% for Canada, down from its prior forecast of 2.4%.

“There are still considerable downside risks to the outlook,” Scotia cautions, with the eurozone’s sovereign debt problem remaining at the top of the list. “Although the ECB has extended an important financial lifeline to the region’s ailing banking institutions, the delay in implementing the much-needed structural and fiscal reforms risks further contagion and financial market shocks — developments that would aggravate already unsustainable debt burdens in many of the affected countries, and aggravate existing economic strains.”

Another issue, Scotia notes, “is the potential for a sharp reversal in historically low government bond yields, driven by increasing investor angst if the expected improvement in the quality of government balance sheets fails to materialize. A sharply rising debt burden would force many governments among the developed nations to implement more restraint that could eventually result in much weaker economic performances.”

A sharper slowdown in China, and recurring geopolitical problems, also remain important risks, too, it notes.