Bank of Nova Scotia economists are trimming their growth forecasts for both Canada and the United States, citing weaker signals from consumers and housing markets.

In a new report, Scotiabank economists indicate that they have lowered their Canadian and U.S. GDP growth forecasts slightly for 2010 and 2011 “to reflect the broadly weaker tone of many recent economic reports”. They still expect Canadian GDP growth to average 3.4% this year, but this is down 20 basis points from their previous forecast. And the call for 2.6% growth in 2011, which is down 10 bps.

The bank’s estimates for U.S. output growth have been cut by a similar amount in both years, down to 3.2% this year and 2.6% next year.

“The increasing turbulence in financial markets, coupled with more moderate employment gains, a weaker pace of housing activity, and further fiscal restraint at the state & local government level, are expected to take a bigger bite out of domestically generated growth in [the second and third quarters], with the lowered output trajectory extending into next year,” it says.

Many of these same factors are contributing to its lower forecast for Canada. “Even with a much stronger growth profile for final domestic demand than south of the border, and proportionately much larger employment gains in particular, some pullback in domestic activity is inevitable in view of the increased financial market turbulence worldwide, the lowered pace of U.S. growth, softer commodity prices, and some cooling in the hot housing market in response to tighter mortgage eligibility rules,” it says.

“Like the United States, profit growth in Canada has been pared a bit this year, reflecting the modest pullback in both commodity prices and quarterly growth rates, though the cyclical upswing remains intact,” it adds.

IE