Wary investors and continued market volatility are causing growth expectations to be “resized” in the coming year, yet Canada is still on track to be the top G7 performer through 2003, says the latest outlook from Scotiabank.

“Investor confidence has been shaken by concerns about the outlook for profits, capital spending as well as blockbuster cases of corporate malfeasance and heightened geopolitical tensions,” says Warren Jestin, Scotiabank’s chief economist.

While next year’s overall growth performance in North America will be respectable, he added, other regions such as Japan, the U.K. and continental Europe won’t fare as well.

Global industrial production has been strengthening since December, says the report, with the strongest performances recorded by Canada and the United States where inventory rebuilding has supported growth and industrial output has surpassed year-earlier levels.

Across Canada, the report foresees significant energy spending in the West, with Alberta commanding the lion’s share of activity, while the offshore petroleum sector will continue to underpin East Coast growth, bolstering exports, job creation and new investment.

The report notes that this year’s fast start puts domestic growth in Canada on track to average nearly 3.5 per cent, a full percentage point stronger than in the United States.

Warren Jestin

Jestin says U.S. Federal Reserve Board chairman Alan Greenspan’s concerns about financial market volatility suggest that U.S. monetary policy will be on hold into next year.

“Canadian interest rates have followed a different course, with the Bank of Canada reacting to more buoyant conditions by raising the benchmark rate three-quarters of a percentage point,” he said.

“Governor Dodge has indicated that he intends to reverse gradually the two percentage-point drop in rates put in place after Sept. 11. However, the decision to defer raising interest rates at its policy meeting in early September suggests that the central bank has adopted a go-slow approach until financial turbulence subsides.”

Globally, the report notes major countries of the Euro zone are being dogged by softening exports and sluggish domestic purchases.

Japan’s economy continues to trail the rest of Asia, where economic conditions remain comparatively robust, and while Japanese exports have revived, weak employment conditions continue.

Mexico’s relationship with the U.S. has helped insulate it against the economic difficulties of some of its Latin American neighbours, although the report adds its growth pace has been slowed by consumer caution and investor uncertainty about the timing of a number of domestic structural reforms.

Meanwhile, another forecast from CIBC World Markets predicts Alberta and Newfoundland and Labrador will take the lead in economic performance next year.

“This year’s geopolitical turmoil is only underscoring the importance of developing new energy sources closer to home,” said CIBC World Markets senior economist Warren Lovely.

Lovely said Alberta’s energy developments will help boost the province’s growth 3.9 per cent. “Alberta continues to attract in-migration and new housing demand with its very competitive tax regime,” he said.