OECD lowers growth outlook for Canadian economy

The Organization for Economic Co-operation and Development (OECD) has predicted a lower growth rate in Canada. From a 2 percent growth rate predicted earlier, the OECD now predicts a rate of only 1.4 percent.

While the decline was the steepest of any in the countries looked at, it was still a better performance than that of France or even Germany. The OECD warned of significant risks to financial stability that extended across borders. It also pushed politicians to remove the burden of producing stimulus from central banks. While Canada's growth is behind that of the U.S. at 2 percent and the UK at 2.1 percent, it is still better than Italy or Japan, or as mentioned, France and Germany. The U.S. and Germany suffered downgrades of one half percentage point each. In 2017 Germany is now expected to grow by 1.7 percent and the US 2.2 percent in 2017. Canada's growth rate in 2015 was just 1.2 percent, so 2016 is still predicted to be slightly better. The CIBC had predicted Canada's growth at 1.3 percent this year close to the OECD estimate.

The Paris-based OECD also cut the rate of global growth from 3.3 percent to 3.0 percent. This will make global growth this year no better than last, which was the slowest in five years. The OECD urged leaders to use all the levers at hand to stimulate economic growth. The group noted that using monetary policy alone as the sole tool for stimulus did not work well: "Monetary policy cannot work alone. A stronger collective policy response is needed to strengthen demand." The group suggested exactly what the Canadian government plans, more investment in infrastucture projects.

The outlook for China's growth was unchanged at 6.5 percent in 2016 and 6.2 percent in 2017. Among emerging economies, Brazil was doing very poorly, with the economy shrinking by 4 percent this year. One bright spot was India where the outlook was raised from 7.3 to 7.4 this year. However, for next year the growth rate was lowered slightly from 7.4 to 7.3, still greater than Chinese growth.

The OECD singled out Canada and other economies reliant upon commodity exports as showing the worst effects from the global economic slowdown that appears to be underway. Catherine Mann,, the OECD chief economist said: "Trade and investment are weak. Sluggish demand is leading to low inflation and inadequate wage and employment growth." Global trade and investment is also weak according to the OECD report.

The low prices of oil and other commodities have hurt the Canadian economy in recent months. Ottawa has responded to the downturn by promising considerable expenditures of new infrastructure projects, a move that will lead to a considerable deficit. Nevertheless, deficit spending is recommended by the OECD and many economists as a way to stimulate the economy. The Bank of Canada forecast is also for 1.4 percent Canadian growth this year but is slightly more optimistic than the OECD with a 2.4 estimate for growth next year.