IMF slashes Canada's economic prospects
Published Tuesday, September 20, 2011 7:23PM EDT
Canada's jobless rate will creep upwards this year as the nation's economy grows far slower than anticipated, the International Monetary Fund predicted on Tuesday.
The lending group slashed Canada's economic growth forecast, reducing it to 2.1 per cent this year and 1.9 per cent next year. The numbers stand in contrast to the agency's earlier prediction of 2.8 per cent growth this year and 2.6 per cent the next.
Amid the slowdown, the IMF also predicted that Canada's unemployment rate of 7.3 per cent would climb to about 7.6 per cent this year and 7.7 per cent in 2012. (In April, the IMF predicted the rate would only be 7.3 per cent next year.)
The gloomy forecast comes just months after Statistics Canada announced that the nation's unemployment rate hit a two-year low in May 2011.
The opposition parties hammered the government over the report in question period on Tuesday, saying the Conservatives are not doing enough to stave off another economic crisis.
"Contrary to the Conservative government, (U.S.) President (Barack) Obama understands that a government has to invest in the economy because the private sector is not doing so. The same is true here in Canada," NDP Leader Nycole Turmel said. "The Conservatives are making the wrong choices. Cutting taxes for large corporations and banks doesn't create jobs. Why is the government refusing to see the evidence and to acknowledge that they have a responsibility to take action to stimulate the economy and to create jobs?"
Industry Minister Christian Paradis countered that the government is focused on both economic growth and job creation with the next phase of its Economic Action Plan, and pointed to the addition of 600,000 net jobs since July 2009.
"If that's a failure, then it would be hard to say what kind of plan could work better than that," Paradis said.
NDP MP Peggy Nash accused the government of ignoring signs of impending fiscal doom, including the increasing indebtedness of Canadians and the fact the IMF has downgraded its forecast for Canada.
Flaherty countered that Nash was "badmouthing" the Canadian economy and said the report predicts Canada will lead all G7 nations in growth over the next two years.
Liberal Leader Bob Rae accused Flaherty of "quoting very selectively" from the report and said the government will drive up the country's debt and deficit with its tough-on-crime legislation, unveiled Tuesday.
"We are on track to balance the budget," Flaherty countered. "We ran substantial deficits in 2009/2010, we've reduced that deficit by about half and we will continue to do that."
Don Drummond, former chief economist at TD, said Tuesday the new numbers more accurately reflect Canada's economic climate compared to the IMF's stronger growth prediction last summer.
Drummond told CTV's Power Play that a sustainable growth rate of about 2 per cent is a more realistic expectation.
"Historically Canadians are used to having growth around the 3 per cent range," Drummond said. "I think we're going to have to get used to something quite a bit more tepid than that, given what's happening around the world and given what's happening with our own demographics. An aging of the population doesn't give you that kind of growth that we've had historically."
In its report, the IMF said Canada is not alone when it comes to a gloomier economic forecast. The agency says the global economy is entering a "dangerous new phase" where activity is slowly and financial confidence is plummeting.
Economic growth estimates for the United States were also lowered, as the nation -- like Canada -- struggles to recover from the 2008 global recession and dodge possible effects of the euro-zone financial crisis.
IMF Chief Economist Olivier Blanchard urged all nations mentioned in the report to adopt strong policies to improve their economic outlook.
"Only if governments move decisively on fiscal policy, financial repairs, and external rebalancing, can we hope for stronger and more robust recovery," he said in the report.
With files from The Canadian Press