‘Ottawa’ Canada the G7 Dark Horse as IMF Projects Improved Growth in 2017
As the International Monetary Fund cuts its global forecast for the next two years and warns of more fallout from Brexit, Canada is projected to emerge as a dark horse among the world’s advanced economies — at least in the short term.
The IMF predicts Canada will bounce from being the third-slowest-growing G7 economy in 2016 to be second strongest — behind only the U.S. — in 2017, according to an outlook released Tuesday, which revised projections from the Washington-based organization’s last report in April.
Unlike Germany, Italy, France, the U.K. and the U.S. — all of which were revised downward or remained the same — the IMF increased Canada’s 2017 growth in the revision by 0.2 per cent to 2.1 per cent.
“The IMF expects an improved outlook of the oil market and the commodity market for producers and this translates to a better outlook for Canada next year,” said Domenico Lombardi, director of the Global Economy Program at the Centre for International Governance Innovation in Waterloo, Ont.
The IMF outlook decreased Canada’s growth projection for this year by 0.1 per cent to 1.4 per cent from its last outlook as the resource-heavy economy continues to go through a rough patch and the manufacturing industry has not yet picked up as much as anticipated.
Falling commodity prices have caused financial turmoil in the once-booming oilsands, only to be compounded by the May wildfires that swept through Fort McMurray, the city at the heart of Alberta’s oil industry.
Overall, the wildfires may trim about a tenth of a percentage point from the country’s annual growth rate if oil production was at half capacity for a month, according to National Bank Financial estimates.
Lombardi, who has worked on the IMF executive board, cautions that Canada could experience medium- to long-term implications from Brexit if it impacts the ratification of the Comprehensive Economic and Trade Agreement between Canada and the EU.
“CETA would have opened a huge market for Canadian producers and exporters and given the current institutional impasse in Europe at this moment, its ratification essentially is very uncertain,” he said.
Last Wednesday the Bank of Canada issued its quarterly Monetary Policy Report, forecasting real gross domestic product growth of 1.3 per cent in 2016, which is down from the 1.7 per cent it projected in April.
The BOC projects growth for 2017 to average of 2.2 per cent, a decline from the 2.3-per-cent the bank forecast in April.
While this projection is similar to the IMF’s forecast, National Bank Financial analyst Krishen Rangasamy says his forecast differs significantly for 2017, with less optimism for investment and residential construction.
National Bank is projecting a 1.7 per cent growth rate next year, revised down 0.2 per cent after the ‘Leave’ side’s victory in last month’s Brexit vote.
“What’s more likely to hurt Canada are uncertainties created by Brexit, which may cause a slowdown in overall global growth and hence hurt commodity prices and Canada’s export volumes,” wrote Rangasamy in a report before the referendum.
Globally, the IMF scrapped its forecast for a pickup in growth this year after the U.K’s vote to leave the European Union, and warned there could be even more damage if it hurts confidence among investors and companies.
“Brexit has thrown a spanner in the works,” said Maurice Obstfeld, IMF chief economist and economic counsellor in a news release.
With the Brexit still unfolding, the report says that it is still very difficult to quantify potential repercussions. While advanced economies and particularly Western Europe face the biggest downward revisions, the outlook for emerging economies — with the exception of Sub-Saharan Africa — remain relatively unchanged or even more positive.