Scotia Economics has cut its global growth forecast once again due to European weakness, although its outlooks for Canada and the United States are holding up.
In a new report, Scotia says that the global economy is set to slow further in 2012, with output growth dragged down by an even weaker performance anticipated in the eurozone. “We now expect that global growth will post a much slower 3.2% advance in 2012, more than half a percentage point lower than our previous forecast, following an estimated 3.8% gain this year,” it says.
Scotia says that the intensifying structural adjustments being implemented by many of the highly-indebted European countries will increase the drag on activity both in Europe and around the world through reduced trade. Persistent fiscal woes and policy uncertainties in Europe and the U.S. are also contributing to volatility in financial markets, which is hampering confidence and growth.
Government austerity, constrained credit in the region’s banks, and household caution, are all contributing to the weakness in Europe. Combined, these factors are expected to reduce eurozone growth to an average of only 0.3% in 2012, a decline of 0.8 percentage points from Scotia’s previous forecast, following a predicted gain of just 1.5% this year.
Scotia’s revised forecast takes into account the late-October agreement to address the significant problems in Europe, but it says that any delay in implementing those initiatives — such as the Greek government’s decision to hold a referendum to approve the latest bailout package — could substantially increase the downside risks to the outlook.
Notwithstanding the European weakness, Scotia has ticked up its forecast for Canadian GDP growth this year by 0.1 percentage point to 2.2%, reflecting slightly better-than-expected momentum heading into the fall. It’s leaving its estimate for 2012 unchanged at 1.7%. Its forecast for U.S. GDP growth for 2011 and 2012 has also been raised slightly — from 1.7% to 1.8% for 2011, and from 1.5% to 1.7% for 2012.