>GLOBAL FORECAST: Cooling Trend In Global Growth

Scotia Economics now expects that global growth will advance by 4.4% this year and 3.8% in 2011 (based upon a purchasing power parity weighting of 34 countries), with emerging countries still outpacing the performance of the advanced nations by a considerable margin. This continues a recent pattern of trimming our economic and financial market forecasts to reflect a number of key developments that are restraining activity around the world.

First, we have pared back domestically generated growth in the United States from already soft levels, with the increased economic and financial market uncertainty since late winter further undercutting confidence and business expansion plans. In a chronically weak job market, Americans continue to focus on paying down high levels of household debt. Housing activity has been adjusted lower to reflect downward revisions to sales and building data. The one relative
bright spot in the U.S. outlook continues to be business investment in machinery & equipment as firms take advantage of increasing order books and expanding international trade, though the mildly lower trajectory now projected for U.S. real GDP will likely take a bite out of the comparatively solid pace of earnings growth.

Second, the economic fallout in Europe from the sovereign debt crisis and the budgetary problems in the United Kingdom will progressively ripple through the region and the rest of the world in the second half of the year and in 2011. Beyond the negative economic impact on the region from the financial upheaval, the expected slowdown in domestic spending will dampen activity internationally through reduced imports and the weaker euro. Nevertheless, we have adjusted our 2010 forecast for the United Kingdom slightly higher because of the much better-than-expected results in Q2 attributable to the slowly emerging recovery that preceded the recent turbulence. Looking ahead, the accelerated pace of fiscal consolidation points to a period of slower, rather than faster, economic activity in the second half of this year and into 2011. While 2011 growth prospects for Germany and France will be limited due to fiscal consolidation and an export sector slowdown, the impact will be offset by a pick-up in activity in the euro zone periphery as these countries emerge from recession.

To read the full report: GLOBAL FORECAST