Shifts in the global economy are sending economists scrambling to revise their forecasts.
Royal Bank of Canada cut its outlook for Canada and most advanced economies on Monday, joining a string of downgrades by bank economists in recent weeks. Top U.S. economists at the National Association for Business Economics slashed their outlook for global and U.S. growth Monday.
A slew of factors are sparking the downgrades, from weak consumer confidence and a tepid housing market in the United States to Europe's sovereign debt crisis. In Canada, the downgrades stem from a weaker outlook for its largest trading partner, along with an unexpected contraction in second-quarter GDP and a report Friday that showed hiring stalled last month.
The wave of revisions reflect "the period we're in of exceptional uncertainty about the global economic outlook, partly stemming from the very fragile U.S. economy, and Europe's credit crisis," said Sal Guatieri, senior economist at BMO Nesbitt Burns, which has cut its estimates twice in recent months.
RBC, for its part, believes the Canadian economy will grow 2.4 per cent this year, after a previous estimate of 3.2 per cent. Earlier this month, UBS strategists slashed their outlook for Canadian growth to 2.2 per cent from 2.9 per cent, saying "global headwinds crashed onto the Canadian landscape."
IHS Global Insight chopped its forecast for Canada last month, and says it will likely lower it again this month.
Risks face even the lower forecasts, Bank of Nova Scotia economists warned Friday. These include chiefly fading business investment – a key economic driver over the past year – as confidence flags.
South of the border, the National Association for Business Economics now figures the U.S. economy will grow 1.7 per cent this year – down from the prior prediction of 2.8-per-cent growth.
Central banks – including the Federal Reserve – have also cut estimates and so has the International Monetary Fund.
Lowered forecasts suggest government assumptions for the economy, too, are now out of date – meaning they may wind up with lower revenue and less to spend than anticipated in spring budgets.
Some forward-looking indicators point to a softening ahead. A Manpower survey of 1,900 Canadian employers to be released Tuesday shows a slightly slower hiring climate in the coming months.
The quarterly poll of hiring intentions shows the net outlook for the October-to-December period slipped to 13 per cent from 16 per cent a quarter earlier. One in five employers plan to increase head count, 8 per cent see cutbacks, 70 per cent plan to maintain current staffing levels and 2 per cent are unsure. The survey was conducted between July 21 and Aug. 3.