Scotia Economics has trimmed its forecast for Canada, amid an easing in global growth momentum, and suggests that global policymakers may need to do more to help support the global recovery.
In a new report, Scotia says its growth outlook for the Canadian economy is down by 0.1 percentage point in both 2013 and 2014, to 1.5% and 2.3%, respectively. “The modest downward revision primarily reflects a somewhat weaker profile for business investment as less-buoyant resource activity and ongoing global economic uncertainty temper capital spending plans,” it says.
The bank is not altering its forecast for U.S. growth. Still, it notes that, “for the third year in a row, a winter promise of strengthening global economic activity has given way to a spring of weakening momentum.” Among other things, it points to softening commodity prices, low and moderating inflation trends, declining sovereign bond yields, and increasing pressure on corporate earnings.
“Economic outperformers are generally few. Countries such as Mexico, Peru and Thailand are advancing at solid rates due to their enhanced competitiveness and more buoyant domestic conditions,” it says. “However, the repetitive and disappointing economic performances are much more evident, and are global in scope.”
Notably, it says that underlying weakness in the UK persists, Japan is only posting marginal gains, and former growth leaders such as Canada, Singapore, and South Korea, are now seeing weaker signs. Emerging markets such as India and Brazil remain lacklustre and well below potential, it says. “Even the twin locomotives of the global economy, the U.S. and China, underperformed in the first three months of this year, registering gains that were good but below expectations,” it says.
“The critical issue confronting the global economy is the inability to generate and sustain a stronger pace of growth,” it says. “There are many reasons — fiscal restraint in the advanced economies, structural adjustments in many of the emerging market economies, ongoing consolidation and re-regulation in the financial sectors hardest hit by recession and capital losses, industrial restructuring to boost competitiveness, weather-related disruptions, or the caution induced by recurring geopolitical risks.” Moreover, there are no simple solutions to these numerous intractable issues.
“Synchronized and stronger regional growth has been elusive, putting additional pressure on policymakers for additional stimulus, or at the least more pro-growth economic reforms if the challenge is to be met,” it says.
“There are no easy answers to resolve the myriad of growth and debt-related strains around the world, just tough economic and political choices,” it concludes. “Around the world, the need for more co-ordinated policy initiatives is critical. For the most part, growth is too fragile to remove or significantly reduce monetary accommodation at this time, though leadership in reducing deficits and debt burdens must persist.”
Policymakers must also promote increased trade flows, and remain vigilant to trade barriers, it says. While countries with large current account surpluses “must be encouraged to promote stronger domestic demand,” it adds, “especially in the emerging market economies where the need for improved social welfare services and expanded infrastructure expenditures can support confidence and spending by businesses and individuals.”