Economists at Bank of Nova Scotia have hiked their gross domestic product (GDP) forecasts for Canada and the U.S., citing stronger than expected consumer sectors.
In a new report, Scotia has raised its call for Canadian real GDP growth in 2014 by 0.2% to 2.4%, noting that this largely reflects stronger consumer spending at the end of 2013. Its forecast for 2015 is unchanged at 2.5%.
“The key to the outlook remains the ongoing improvement in domestic production and exports in response to strengthening U.S. activity and a weaker exchange rate, factors that will help offset the more moderate pace of domestic consumer and housing-related expenditures, slower demand in key emerging markets, and less buoyant commodity prices,” it says.
At the same time, Scotia has raised its U.S. real GDP growth call to 2.7%, which is also an increase of 0.2%. It also kept its growth target for 2015 at 3.0%.
“The U.S. will benefit from improving job market conditions and consumer confidence, strengthening housing activity, and less fiscal restraint,” it says. “There is considerably more pent up demand for ‘big-ticket’ purchases in the United States, a key reason why it will increasingly outperform Canada.”
Indeed, Scotia has raised its forecast for U.S. housing starts to 1.23 million units in 2014 from 1.15 million units; and 1.4 million units in 2015 from 1.35 million units.
The brighter forecasts for Canada and the U.S. is also reflected in its rosier outlook generally. “After more than half a decade of disappointment, global economic activity is showing hopeful signs of building momentum,” Scotia notes.
Along with forecast improvements in Canada and the U.S., it says that Mexico is also expected to experience a pick-up in growth; and, it notes that the Eurozone “has begun to limp out of recession, led by Germany, while U.K. growth is being underpinned by ongoing monetary stimulus and government lending initiatives.”
Moreover, with inflation remaining subdued, it says that the central banks in Europe, the U.S. and Canada “will likely keep short-term interest rates near generational lows well into 2015.”
“However, global financial markets will remain prone to sudden bouts of volatility and higher long-term rates as the U.S. Federal Reserve tapers its massive bond buying program,” it says. “With investors now more positive on U.S. prospects and more cautious about the outlook for many commodity prices, the U.S. currency will remain strong with the Canadian dollar likely fluctuating in the low-to-mid 90¢(US) range.”