IMF Cuts Canada’s Economic Outlook

11 October 2012 10:00am - Which Way to Pay

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IMF Cuts Canada’s Economic Outlook

In the International Monetary Fund’s latest World Economic Outlook report, the agency has downgraded its global economic outlook and warned that Canada’s economy remains vulnerable to risks from the housing sector and high household debt. The IMF downgraded its expectations for growth in the world economy to 3.3% this year down from a 3.5% estimate seen in July. The agency forecasted the global economy will grow by 3.6% in 2013, again down from a July prediction of 3.9% and an April forecast of 4.1%.

the IMF said the reason for the downgrades were because of weak growth and fears of recession in some advanced economies which will further affect emerging economies as global trade looks set to slow. Olivier Blanchard, Chief Economist of the IMF said, “Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weakness.”

In Canada, growth is forecasted to be 1.9% this year and 2% in 2013, which are both down 0.2% from predictions made three months ago. The report said that Canada’s economic recovery had been “more robust” than in the United States because of “favourable financing conditions” and the commodity boom. However the IMF warned, “In Canada, a priority is to limit risks related to elevated house prices and household debt levels.”

The report said Canada’s growth was being held back by sluggish growth south of the border bud did say, “Still, activity has recovered a faster pace than in the United States. Domestic demand-both business investment and private consumption – has been supported by exceptionally favourable financing conditions, including low interest rates and credit availability...These factors, along with the commodity boom, have also boosted the housing sector, especially in provinces with strong mining activity. However, housing-related credit and household leverage have risen markedly since the Great Recession, despite measures to limit mortgage growth.” The IMF said tighter regulations were to blame for slower mortgage growth. However, the agency earned, “if household leverage continues to rise, additional measures may need to be considered.”

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Related Links:
• IMF
World Economic Outlook

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