IMF cuts Canada's economic outlook

Canada’s jobless rate will tick higher this year and next as the global economy enters a “dangerous new phase,” the International Monetary Fund said Tuesday as it chopped its forecast for the country.

The IMF now sees Canada’s economy growing 2.1 per cent this year and just 1.9 per cent next year – much weaker than its April forecast of 2.8 per cent and 2.6 per cent, growth respectively.

Canada’s current jobless rate of 7.3 per cent is poised to creep higher amid a worsening prognosis for the United States. The fund sees the jobless rate averaging 7.6 per cent this year and 7.7 per cent in 2012 (its April outlook predicted next year’s unemployment rate would be 7.3 per cent).

“Although jobs have rebounded at a faster pace than in the United States, a slower pace of recovery over the near term is expected to keep unemployment at 7½ to 7¾ per cent during 2011–12,” its world economic outlook said Tuesday.

Still, downdrafts from Canada’s southern neighbour will be offset by “relatively healthy economic fundamentals and still-supportive commodity prices,” it said.

The lower economic growth forecast stems from fiscal withdrawal and the ripple effects of a U.S. slowdown.

The downside risks to the world’s largest economy have “significantly increased,” the IMF said as it shaved its growth estimates for the U.S. by a percentage point over this year and next. It sees unemployment there remaining high throughout next year.

Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing, it said, while calling for a strong, collaborative policy response.

The two major threats to global growth are that the euro-zone crisis worsens and the U.S. economy deteriorates further.

Unless policies are strengthened, especially in advanced economies, “nothing beyond a weak and bumpy recovery is in the cards,” it cautioned.

Growth won’t be uniformly weak – the IMF sees solid expansion in countries such as Turkey, Lithuania, China, Peru and Indonesia this year and next.

For Canada, which is in a sounder fiscal and financial position than the U.S., fiscal tightening can continue “but there is policy room to pause if downside risks to growth keep rising.”

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Source: Globe&Mail