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Scotiabank economists revise outlook for Canadian GDP growth

Date: Thursday, June 3, 2010
Author: Investment Executive

Bank of Nova Scotia economists have raised their Canadian GDP growth forecast for 2010 again, but are trimming their outlook for into next year.

In a research note, Scotia said that it has bumped up its 2010 forecast to 3.6% from the prior estimate of 3.4%, “reflecting the stronger-than-expected early-year performance.” But, at the same time, it has slightly lowered expectations for late 2010 and into 2011 due to “the modest downgrading in global growth and commodity prices in light of heightened fiscal concerns in Europe”.

It now expects GDP growth to average 2.7% next year, down 0.1 percentage point from its May forecast. The firm has also trimmed its US GDP growth forecast for 2011 to 2.7%, while the call for this year is unchanged at 3.4%.

On the provincial front, Scotia says that momentum has been greater than expected in early 2010 for a number of provinces, also leading to several revisions. “The outlook for Central Canada has been revised upwards with employment and consumer activity having gained significant momentum. Ontario is benefiting from increased investment in the auto sector, with a number of new large-scale projects in the pipeline,” it says. “Western Canada has also seen some positive developments, namely some additional adjustments to the royalty framework in Alberta and a very welcome revival in lumber prices in British Columbia.”

Additionally, it suggests that the oil spill on the Gulf Coast will have a significant impact on Atlantic Canada, particularly Nova Scotia and Prince Edward Island, “with prices and demand for Canadian seafood set to increase considerably.” However, offshore energy production in Newfoundland and Labrador is set to decline an estimated 11% in 2010, it adds.

Elsewhere, in the world, Scotia finds that Mexico is recovering at a faster pace than originally expected, pushing up its GDP growth forecast for 2010 to 4.8% from 4.2%. And, it now expects Chinese growth of 10.0% in 2010, “given anticipated effects on exports of renminbi appreciation vis-à-vis the euro”.