Tuesday, October 21, 2014

IMF still not sold on Canada

OTTAWA—The International Monetary Fund again has upgraded its projection for Canada’s economy, but the latest outlook from the international financial organization shows it is far from sold on the country’s underlying fundamentals.
“Downside risks to the outlook still dominate, including from weaker-than-expected exports resulting from competitive challenges, lower commodity prices, and a more abrupt unwinding of domestic imbalances,” it warned.

“Indeed, despite the recent moderation in the housing market, elevated household leverage [debt] and house prices remain a key vulnerability.”
The IMF predicted Canada’s economy will expand by 2.3 percent this year—one-10th of a point more than it thought three months ago—and continue to pick up speed to 2.4 percent in 2015.
Those numbers are a little softer than private-sector forecasts, as well as south of the Bank of Canada’s 2.5 percent projection for both years, but in line with the IMF’s recent bearish assessment of Canada, which has included dire warnings about a housing correction.
And it now places Canada in third place behind the U.S. and the United Kingdom for growth among the Group of Seven industrialized countries in both 2014 and 2015.
The Washington-based institution, which acts an a monitor of global economies and lender of last resort for troubled countries, does acknowledge that Canada is positioned to benefit from the U.S. resurgence, which should boost Canadian exports and business investment.
That could lead to a situation where “external demand could surprise on the upside” and the economy out-performs projections.
But the IMF advises policy-makers against counting their chickens too soon.
The rotation from domestic to external demand hasn’t happened yet, so the Bank of Canada should keep interest rates low and Ottawa “needs to strike the right balance” between supporting growth and driving too hard to balance the budget, it said.
The new outlook comes days before global finance ministers and central bankers meet in Washington for the spring meetings of the IMF and World Bank, where lighting a fire under the dormant global economy again will be the main topic.

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