Scotiabank Ups Economic forecast

Courtesy of www.cbcnews.ca

The Bank of Nova Scotia has revised its economic forecast upward, arguing in a report Thursday that "the global economy is transitioning from recession to recovery."

The new forecast said Canada's economy will shrink by 2.2 per cent this year and grow 2.5 per cent in 2010.

That's an increase of 0.8 percentage points in the 2010 number, said Aron Gampel, the bank's deputy chief economist.

But he also emphasized that the change in the bank's sentiment was important. "We believe that the glass is half full, not half empty."

After a year of cutting predictions — along with other forecasters — the bank now believes "the foundations for a recovery have been laid."

The forecast puts the bank on the bullish side of some other published estimates. "We have gone from being a below-consensus forecast to an above-consensus forecast," Gampel said.

The Bank of Canada in April predicted a drop of three per cent this year, to be followed by growth of 2.5 per cent in 2010.

The Toronto-Dominion Bank estimated June 2 that the decline would be 2.4 per cent this year, with growth of 1.3 per cent in 2010.

U.S. forecast raised 1%

Scotiabank said the better outlook for Canada follows "strengthening demand in the United States and internationally for manufactured and commodity-related products," although the surging loonie and other issues will constrain the recovery.

But the U.S. economy will grow by 2.8 per cent in 2010, up a full percentage point from the bank's previous estimate.

Canada and other countries "are expected to piggyback on the renewed momentum being generated by the globe’s primary economic engines, the United States and China," the report said.

Scotiabank cited six reasons for its optimism:

• Policymakers around the world have contained the financial crisis.
• Price discounting and lower energy costs are encouraging spending.
• An "unprecedented period" of cutting inventories is ending, and even a modest rebuilding will boost production.
• Central banks have provided stimulus through low interest rates and monetary injections.
• Governments are spending freely.
• Investors are showing confidence by boosting stock markets.

And while some observers are worried the government and central bank stimulus will raise inflation, the bank said that unemployed workers and excess industrial capacity will provide a cushion, so "inflationary pressures will be slow to build."