International Monetary Fund reduces Canada GDP growth rate projection
The International Monetary Fund(IMF) has slightly reduced its forecast for Canadian economic growth both for this year and next. Reduction in oil prices is partly responsible for the reduction in the growth outlook.
The IMF's, World Economic Outlook, predicts that Canadian GDP will grow by 2.2 per cent this year and only 2.0 per cent in 2016. These predictions are both down 0.1 per cent from the last projection in January of this year. The US economy will do better than Canada, and is predicted to grow by 3.1 per cent both this year and next. Lower oil prices in the US will help spur consumer demand there. The US growth rate will still be below the global average estimated at 3.5 per cent for this year.In spite of the slight decline, the IMF still describes Canadian growth as solid and reinforced by a relatively stronger US economy and the decline of the Canadian dollar which will help exports. The report said:The IMF also suggested that the Canadian government pursue "targeted macroprudential policies that would address high housing sector vulnerabilities". The IMF is concerned that low mortgage rates will encourage borrowing and send house prices soaring, resulting in a possible real estate price bubble. If interest rates rose or there was a slump in employment many borrowers might not be able to make mortgage payments. The government has already taken some steps to make qualification for mortgages a bit stronger. Other policies to dampen demand may be required. House prices are still rising in Canada although mostly in some key markets such as Toronto and Vancouver. Cities in Alberta such as Edmonton and Calgary could see price declines as the energy industry cuts back due to the low price of oil. Some statistics on recent home prices can be found in this article.
“These developments have led to a welcome pickup in exports, but have yet to translate into strong investment and hiring. But risks are tilted to the downside, because the unusually large fall in oil prices could further weaken business investment in the energy sector and lower employment growth.”The lower oil prices will lower investment and employment significantly in areas such as Alberta where the energy sector is a key part of the economy. While the lower oil prices might have a net negative effect on Canada, the IMF estimates that if the lower prices were passed through to consumers globally there would be a net jump in global growth of about one per cent.
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