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.

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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:“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.

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.

Read more: http://www.digitaljournal.com/business/business/imf-slightly-reduces-growth-outlook-for-canada-this-year-and-next/article/430740#ixzz3XUZxqMfX

IMF counters Canadian budget rosy outlook.

This is from the Star.

Many forecasts lately have failed to take adequate account of negative factors. The Flaherty predictions are not actually out of line with others. In fact the Royal Bank gives an even rosier picture than Flaherty. However Flaherty was predicting no deficit at all back in Sept. of 2008.


IMF counters budget's rosy outlook TheStar.com - Business - IMF counters budget's rosy outlook
World body revises forecast for Canada downward, sees a less dynamic recovery than Ottawa predicted
January 29, 2009 Ann PerryBusiness Reporter
The International Monetary Fund expects the global economy to come "to a virtual halt" this year, and says Canada's economic recovery will be far less vigorous than the federal government and the country's central bank are predicting.
The world body yesterday revised its outlook for Canada sharply downward, forecasting the country's economy will grow by a sluggish 1.6 per cent in 2010, after contracting by 1.2 per cent this year.
That view contrasts markedly with the much more energetic rebound Finance Minister Jim Flaherty predicted a day earlier in a big-spending budget aimed at cushioning the blow of the recession.
Relying on average private-sector forecasts, the government expects real gross domestic product will grow by 2.4 per cent in 2010, after shrinking by 0.8 per cent this year.
But it admitted that risks to its outlook "remain tilted to the downside" and adopted a more pessimistic view of nominal GDP, or growth unadjusted for inflation, than the private sector.
Even that relatively rosy prediction pales in comparison to the Bank of Canada's latest projections for real GDP growth of 3.8 per cent next year, following a 1.2 per cent contraction this year.
Mary Webb, a senior economist at Scotia Economics, said the IMF's outlook is in line with her bank's forecast for 1.6 per cent real growth in 2010.
"Our concern is that you still have a financial system and households deleveraging in the U.S., you have a synchronized global downturn that you don't easily emerge from quickly, and this really wasn't a downturn made in Canada," Webb said.
"We do have a lot of stimulus coming into play, and I think it will help us get out of this downturn. Really the question then becomes the degree," she added.
The IMF offered a decidedly gloomy outlook for the global economy.
It is now forecasting global growth to fall to 0.5 per cent in 2009, the lowest rate since World War II and a downward revision of 1.7 percentage points from its outlook late last year.
That will be followed by 3 per cent growth in 2010.
But it warned that uncertainty surrounding its outlook is "unusually large," and that "downside risks continue to dominate, as the scale and scope of the current financial crisis have taken the global economy into uncharted waters."
The IMF expects growth in "advanced economies," a group that includes the United States, Canada, the euro area, Japan and the United Kingdom, to contract by 2 per cent this year, followed by 1.1 per cent growth in 2010.
Emerging and developing economies will see growth slow to 3.3 per cent this year, dropping sharply from 6.3 per cent in 2008.
Meanwhile, the U.S. Federal Reserve left its key policy rate at virtually zero yesterday, and said it expects it to stay at "exceptionally low levels ... for some time."
Noting that the economy "has weakened further," the central bank said it will "employ all available tools" to restart the U.S. economy.
It also said it is prepared to purchase longer-term Treasury securities if circumstances warrant, an unconventional tool that could help push down mortgage rates.