Bank of Nova Scotia has lowered its forecast for Canadian output growth this year from 1.8% to 1.6%, according to the latest Global Forecast Update from Scotia Economics.
“The markdown from last month reflects a weaker-than anticipated handoff from 2015, as well as a further retrenchment in capital investment alongside even weaker oil prices,” the report says.
Amid this dimmer outlook, Scotia has also lowered its growth forecast for several provinces, particularly in regions affected by commodity price weakness. “Alberta’s output is now expected to contract modestly in 2016 in response to the more extended downturn in oil & natural gas investment,” the report says.
Looking ahead to 2017, Scotia sees Canadian gross domestic product growth picking up to 2.3%, the report says, “supported by a gradual recovery in non-resource exports, moderate consumer spending gains, and increased infrastructure investment.”
For this year, Scotia expects further commodity price weakness, before tightening supplies and rising demand starts to boost prices, with larger gains possible in 2017. However, oil prices could fall further in the first half of 2016, the report says, “as the oil sanctions on Iran are lifted and Saudi Arabia continues with its policy of rebuilding market share at the expense of price, forcing out higher-cost non-OPEC producers.”
The firm’s forecast for U.S. growth is unchanged from last month. It continues to expect the U.S. economy to expand by 2.5% this year and 2.7% in 2017. “The global economy is expected to regain some modest traction this year, with the expansion supported by still-accommodative financial market conditions throughout much of the world and very low energy prices,” the report says, adding that overall growth will continue to be subpar amid a slowdown in China, and continued weakness in Europe and Japan.
“From a performance perspective, the U.S. and the U.K. are expected to lead the advanced nations. Euro zone activity is likely to post a further modest gain, while Japan and Canada should continue to lag,” the report says. “India and China will take the top two spots on the emerging markets’ growth ladder, although the two nations will continue to exhibit diverging growth trends.”
“Lower oil prices will provide a lift to many of the large importing nations in the Asia-Pacific region and help offset the impact of China’s slowdown. China’s under performance will also limit the export potential in the Pacific Alliance countries, although Mexico and Colombia will benefit from the pick-up in U.S. activity. Recessionary conditions will persist in Brazil and Russia,” the report adds.