Scotia Capital economists have lowered their forecasts for global GDP growth, amid weakness in the U.S. economy, European sovereign concerns, and signs of slowing in otherwise-strong emerging economies.

The firm trimmed its forecast for Canadian GDP growth this year by 0.1 percentage points to 3.3%. “The modest downward revision reflects the slightly weaker profile for U.S. growth, as well as the recent marked softening in housing activity and less buoyant consumer confidence readings,” it says.

It has also lowered expectations for U.S. growth for the second half of this year, “primarily reflecting a weaker projected profile for consumer spending and residential investment.” Scotia is now calling for GDP growth of 3.0% and 2.5% for 2010 and 2011, down 0.2 and 0.1 percentage points, respectively. Its expectations for employment growth, housing starts, corporate profits and inflation “have all been scaled back somewhat”, it adds.

For Canada, its 2011 forecast for growth of 2.6% is unchanged, “with a ramping up in business investment and healthy consumer outlays helping to offset a ramping down in fiscal stimulus.”

With these forecast revisions, Scotia Economics also now expects that global growth will come in at 4.4% this year, and 3.8% in 2011, “with emerging countries still outpacing the performance of the advanced nations by a considerable margin.”

“This continues a recent pattern of trimming our economic and financial market forecasts to reflect a number of key developments that are restraining activity around the world,” the firm says, citing the weaker U.S. outlook, the economic fallout in Europe from the sovereign debt crisis, and signs that growth in many of the high-flying emerging nations in the Asia-Pacific region and South America is moderating, too.

Within North America, Scotia expects that Canada and Mexico will continue to outperform the US, while Germany will lead in the euro zone. “But the dominant trend is towards a slower, but still sustainable growth profile internationally because of the restraining influence attributable to the intensifying deleveraging of the household sector in many over-indebted countries, the discernible shift to fiscal consolidation, and sooner-rather-than-later, throughout most advanced nations, and the tighter regulatory guidelines that financial institutions will be operating under in the future.”

“In this environment, inflation pressures are likely to remain on the backburner, except in many of the emerging nations that are consistently experiencing above-trend growth,” it adds. In countries that are operating far below capacity, like the US and the euro zone, Scotia says that monetary policy is likely to remain on hold into the second half of next year.

IE