IMF lowers growth prediction for Canadian GDP in 2016 and 2017

Although the Canadian economy had a fast start this year the International Monetary Fund(IMF) has reduced its growth forecast. The IMF cited continuing damage to the energy sector and lower expected growth globally as reasons for the reduced prospects.

The IMF cut its projection for Canadian gross domestic product (GDP) growth to 1.5 percent in 2016. In the previous prediction last quarter in January, the outlook was for 1.7 percent. The outlook for 2017 was reduced from 2.1 percent to 1.9 percent. The IMF said commodity-exporting economies suffered from reduced income and reduced investment. In Canada, the energy sector was a drag, only partially offset by a lower loonie and an expected increase in public investment by the Liberal government.

This is the sixth straight quarter that the IMF has reduced part of its two-year Canadian GDP outlook. The decline in our growth outlook has reflected the slump in prices for commodities. The Bank of Canada also predicted lower growth in Canada in a January report at 1.4 percent. Private-sector economists have a rosier projection of our growth at least during the first quarter this year. They think that our growth was close to 3 percent on an annualized basis and expect our growth to be close to 2 percent for the year. The Bank of Canada's projection for the year in January was 2.4 percent well above that of the IMF.

The CIBC's most recent forecast for 2016 was at 3.2 percent, down from 3.4 percent in January and 3.8 percent a year ago. For 2017 it forecast growth at 3.5 percent down marginally from its January forecast of 3.6 percent.

The Organization for Economic Co-operation and Develoment (OECD) also downgraded its estimates for the growth in the Canadian Economy as well as those for other G7 countries. The OECD predicted that Canada's economy will grow by 1.4 percent this year and 2.2 percent in 2017.

The global outlook also was for weaker growth according to the IMF report:“Global recovery continues, but at an ever-slowing and increasingly fragile pace. The months since the last World Economic Outlook have seen a renewed episode of global asset market volatility, some loss of growth momentum in the advanced economies, and continuing headwinds for emerging market economies and lower-income countries...Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation.”The report did note, however, that conditions had improved somewhat since earlier in the year. Oil prices were somewhat firmer, and capital outflows from China were lower, and some decisions by central banks were helping to improve sentiment about economic growth but downside risks remained. The IMF World Econonomic Outlook is released just prior to the spring meetings of the IMF and World Bank to take place in Washington April 15 to 17.

The Organization for Economic Cooperation and Development reduces growth rate projection for Canada

The Organization for Economic Cooperation and Development(OECD) has cuts it growth rate prediction for Canada in both this year and also in 2016.

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In its economic assessment released today, March 18, the OECD said: “Overall, the near-term outlook remains for moderate, rather than rapid, world GDP growth. [But] real investment remains sluggish and labour is not yet fully engaged. Lower oil prices will boost global demand and have created conditions for many central banks to lower interest rates.”The Canadian central bank has already lowered interest rates in the hope of stimulating economic activity. Prior to the drastic drop in oil prices the OECD had predicted that Canada would gradually begin raising interest rates around the middle of this year. The opposite has happened, as in January, Stephen Poloz, the governor of the Bank of Canada, lowered interest rates from 1 percent to 0.75 percent.

The report claimed that overall the effect of lower oil prices should be positive:“Lower oil prices both raise the real incomes of households and reduce costs for firms, and should therefore be beneficial for global growth, notwithstanding the loss of real income for oil producers. The fall in energy prices also puts downward pressure on consumer prices. Many central banks have responded to the shock by cutting interest rates or signaled a more accommodative policy stance.”This is little comfort for provinces such as Alberta whose economy is very much dependent upon oil production and royalty revenues. Alberta's construction industry is predicted to face three years of job losses.

The OECD predicts that Canadian GDP will increase just 2.2 percent in 2015, down from a predicted 2.6 per cent gain last November. In 2016 growth is also down at 2.1 percent compared to an earlier estimate of 2.4 percent. US growth has remained the same at 3.1 percent in 2015 and 3.0 percent in 2016, outpacing Canadian growth.

The Royal Bank of Canada(RBC) earlier had also reduced its growth forecast for Canada. For 2015 RBC predicted growth in GDP as 2.4 percent down from a December forecast of 2.7 percent. However, Craig Wright, RBC chief economist said: “We see the hit to the economy from a pullback in oil and gas activity as targeted and regional, and unlikely to derail Canada’s economy this year.” The slump in oil prices wlll hurt growth prospects for oil-producing provinces such as Alberta and to a lesser extent Saskatchewan, as well as Newfoundland and Labrador. On the other hand, the lower oil prices will be positive for Ontario,, British Columbia, and Quebec, that are oil consumers. The lower Canadian dollar will also help exports along with the growth of the US economy.