Economists with Bank of Nova Scotia have raised their 2012 forecast for Canadian real GDP growth slightly, largely in response to recent revisions, but continue to see a modest recovery over the next year, before a revival in 2014.
In a research note, Scotia bumped up its 2012 forecast by 0.2 percentage points to 2.1%. Its forecast for 2013 output growth is unchanged at 1.8%. “Recent indicators continue to point to a moderate expansion, with overall momentum restrained by a slowing housing market, modest consumer spending gains, more cautious business investment plans, ongoing fiscal restraint and a challenging export environment,” it says.
Scotia’s outlook for U.S. growth is unchanged, with real GDP expected to advance 2.1% this year and 1.9% next, it notes. “Consumer and housing demand are showing signs of improvement, but uncertainty surrounding the year-end ‘fiscal cliff’ is weighing on business investment and hiring, and weak global growth is restraining exports,” it says.
Also, Scotia notes that output reductions caused by Hurricane Sandy is expected to reduce fourth quarter growth, but that reconstruction “should provide a lift to activity late in the quarter and into next year.”
Overall, Scotia says that output growth around the world is on track to register an average gain of 3.1% in 2012, down from the 3.9% increase in 2011 and more than 2 percentage points below the 5.3% increase recorded in the first year of the recovery in 2010. “The softer performance continues to reflect the recession in the euro zone, business caution in the United States, and the greater-than-anticipated slowdown in the large emerging economies that were sideswiped by the reduction in international trade as well as prior restraint initiatives aimed at moderating domestic credit growth and inflation,” it says.
It also expects another year of overall sub-par growth in 2013, “reflecting the ongoing balance sheet consolidation underway in most developed countries, and the continuing unwinding of imbalances in many emerging nations.” And, it says risks to the outlook remain on the downside.
The outlook for 2014, Scotia says, suggests a “renewed acceleration” in global growth to around 3.8%. “The emerging economies, and China and Mexico in particular, are better positioned to generate stronger activity based on much more supportive household balance sheets and demographic profiles, and in some cases, respond to the stimulus being introduced,” it says.
Also, it expects that the U.S. economy will continue to gain momentum from increased spending associated with improving household finances and business investment. “Canada will continue to piggyback on the U.S. revival and the anticipated buoyancy in commodity prices,” it notes.
Europe should also “slowly begin to turn the corner, assisted by ongoing central bank support and the structural adjustments underway,” Scotia adds.
“The improving trend in global economic activity will be accompanied by strengthening credit demand and increasing inflation expectations that reinforce a renewed upward tilt in longer-term borrowing costs,” it concludes.