IMF cuts Canada's growth forecast
Published Thursday, July 9, 2015 10:53AM EDT
Last Updated Thursday, July 9, 2015 1:54PM EDT
The International Monetary Fund has cut its projection for economic growth in Canada, noting the drop in oil prices has hit both Canada and the United States hard, leading to "unexpectedly weak performance" across North America.
In its July World Economic Outlook, the IMF said it now expects to see only 1.5 per cent growth in Canada this year. That's down from its April prediction of 2.2 per cent. The group expects growth to rebound in 2016 to 2.1 per cent for the year.
The U.S. economy, meanwhile, will grow 2.5 per cent this year, the IMF predicts, though that's down from its previous estimate of 3.1 per cent. Growth will then reach 3.0 per cent in 2016, it says.
The banking group noted that world economic growth was only 2.2 per cent in the year's first quarter—which is 0.8 percentage points short of its April forecasts. It blamed the shortfall on "an unexpected output contraction in the United States" which caused spillovers to Canada and Mexico.
As well, harsh winter weather and port closures contributed to weakening U.S. activity, as did a reduction in capital expenditure in the oil sector.
For those reasons, it's expected growth in advanced economies will increase from 1.8 per cent in 2014 to only 2.1 per cent in 2015
"The unexpected weakness in North America, which accounts for the lion’s share of the growth forecast revision in advanced economies, is likely to prove a temporary setback," the group said in a statement.
It added that "the underlying drivers" for economic growth in advanced economies such as Canada still remain intact. They include: easy financial conditions, lower fuel prices for consumers, and improving confidence and labour market conditions.
The IMF report noted the debt crisis in Greece, but said that development had not changed its outlook for the global economy.
"Developments in Greece have, so far, not resulted in any significant contagion," it said. "Timely policy action should help to manage such risks if they were to materialize."
Glen Hodgson, chief economist at Conference Board of Canada, notes that all the major Canadian banks’ economists have lowered their economic growth forecasts in recent days, citing the impact of the drop in oil prices.
"So there's a consensus forming that this is going to be another weak growth year for Canada," he told BNN Thursday.
Hodgson says because the first four months of the year saw a "mild contraction" in the economy, previous growth forecasts of 2 per cent no longer make sense.
Like other economists, Hodgson expects the second quarter numbers will reveal Canada slipped into a technical recession – defined as two quarters of negative growth – in the first half of this year. But he says he is still encouraged by signs of positive job growth.
On Monday, the Bank of Canada said its most recent business outlook survey suggested businesses in the West expect sales to slow over the next 12 months as the oil price shock spreads. But, it also noted that demand is strengthening in regions less exposed to the energy sector.
Finance Minister Joe Oliver responded to the IMF report by stating -- as he did earlier in the week -- that the "global economy is fragile" and that Canada "must stay the course" with the Conservatives' plan for jobs and growth.
“As the IMF said today, the Canadian economy will grow this year. But with greater global economic instability at our shores, Canada must continue with our plan to grow the economy through lower taxes," Oliver said in a prepared statement.