As IMF sounds alarm on Canadian economy, policymakers told to keep supporting growth

[SASKFARMER3]

latest global report card on Canada’s economy is cautionary and firm: Weaker growth could mean budget-balancing efforts and higher lending rates will need to be put on hold.
The outlook for Canada’s economy has weakened significantly in the past few months, falling further behind the United States and still below many other industrialized nations.

“The main challenge for Canada’s policy-makers is to support growth in the short term, while reducing the vulnerabilities that may arise from external shocks and domestic imbalances,” the International Monetary Fund said in its World Economic Outlook on Tuesday.

“High household debt and continued moderation of the housing sector will restrain domestic demand.”

Canada’s growth will ease to 1.5% this year from 1.8% in 2012. In 2014, however, the economy could see a 2.4% pickup, the Washington-based global lender said.

Even so, we are now playing catch-up with the United States, our main source of trade revenue, whose economy the IMF predicts will advance 1.9% in 2013 and 3% next year.
So the |IMF thinks were worse than the USA.

[SASKFARMER3]

The IMF said risks to its Canadian forecast are “tilted to the downside,” given the still-fragile fiscal situation in the U.S., along with ongoing financial and debt woes in Europe. Weaker prices for Canadian commodities also pose a threat to growth, it said.
The IMF said fiscal consolidation is needed to absorb future shocks to the economy. But the government should be prepared to provide additional spending to promote growth and social programs when needed.

This runs counter to the Conservative government’s austerity focus — a policy of program spending cuts and a promise to balance the federal budget by 2015.

“I believe the IMF has seen the light, to some extent, that austerity — especially in Europe — had become self-defeating in some countries that were trying to consolidate fiscal finances much too rapidly and it was seen to be counter-productive,” said Douglas Porter, chief economist at BMO Capital Markets.

If Canada is to pick up its pace of growth, though, the economy will require a seismic shift away from its dependence on households.

With consumer debt at record-high levels and the housing market showing signs of cooling, Canada will need to rely more on business investment and stronger exports to pull the economy out of its post-recession slowdown.

Many companies have been hesitant to expand their markets in an uncertain global economy, and that —along with weak domestic demand — has hampered plans by the Bank of Canada to raise its trendsetting interest rate, which has been at just 1% since September 2010.

In its report, the IMF also looked at the central bank’s current monetary policy, saying it was “appropriately accommodative,” but added that “the monetary tightening cycle should be delayed until growth strengthens again.”

Bank governor Mark Carney is widely expected to again delay a move on rates Wednesday, when policy-makers also issue their latest economic outlook in the closely watched quarterly Monetary Policy Report.

“To me, the only question is whether they totally toss overboard the tightening basis,” Mr. Porter said. “I would give about a 30% chance that they do . . . and just go completely neutral.”

Meanwhile, in its report, the IMF said Canada’s output this year will lag the 8% growth the fund expects from China, as well as the 3.4% advance forecast for Russia. Mexico is seen growing at pace of 3.4% in 2013, while Brazil could notch up 3% expansion. For South Africa, growth should reach 2.8% this year and 3.3% in 2014.

On the downside, the IMF expects the 17-nation eurozone — including France, Italy and Spain — to continue with the negative growth, going from 0.6% retrenchment last year to a decline of 0.3% in 2013 before taking a 1.1% positive turn next year. While Germany is part of the group, the IMF is forecasting growth there of 0.6% this year and 1.5% in 2014.

[errolanderson]

Bank of Canada likely to hold lending
rate at 1% for the 21st straight
meeting. And Carney must smell-the-
coffee and reduce the BOC growth outlook
for Canada. Currently pegged at 2% (not
a chance).

Too bad, politicians must run into a
brick wall before figuring it out.

CRB Index (dow jones of commodity
prices) now in serious downturn.

[ajl]

Why is Mark Carney paid a big salary for a job so easy a monkey
could do it? If the US prints money, we print money. There is
nothing else that can be done.

[riders2010]

Because he is so much more of a human being than the rest of us that he deserves that kind of salary to make those decisions, just like all the bank boys and wall street boys? Thats the way our system is set up and yet those of us working our asses off and really doing things and taking the risks are considered the low end of society. Why is that?

[fjlip]

Heard yesterday CEO's make 354 times the wages of the company's workers. Big bucks for BIG decisions. The rest of us are low value.

[liberty]

Like most mainstream economists, the IMF confuses economic growth with inflation. They continue to get away with spouting this nonsense because the average Joe citizen continues to believe that one percent interest rates are always a win-win situation. Too few people see the dangers lurking in easy-money policies.

[Rareearth]

Awesome. Maybe we can follow Japan's lead
with negative interest rates, like they had
experienced during their current deflationary
recovery.

It will be a mess when the bubbles start to pop.
Today all a sovereign country can do is print to try
and devalue the currency to maintain
competitiveness. There will likely be many
actions and reaction, taking a decade to sort
through. Sask can says they are still seeing
markets recover from 2008 with ability or lack of
ability of foreign importers to receive financing for
imports, wait till consumers confidence bubble
bursts and every one starts to hind and hord.

[liberty]

Devaluation sounds easy, provided only a handful of countries do it. If most countries engage in devaluation, then the relative value of everyone's currency remains stable, effectively negating the devaluation. What do you do then?

[cottonpicken]

Good point.

Its like global coordinated impoverishment.

[sumdumguy]

At least, US and Canada can print their own
money. It wasn't that long ago there were
rumbling about a common North American
currency. Ask Germany how that is panning out.