The International Monetary Fund is upgrading Canada’s growth expectations for this year to 1.7 per cent, but warns that overall global conditions remain uneven, weak and perilous.
The two-tenths of a percentage point upward revision for Canada follows a first quarter that topped expectations by coming in at a relatively strong 2.5 per cent.
But the IMF says that will even out over the year and it predicts Canada’s growth rate will rise to only 2.2 per cent next year, two-tenths less than its previous forecast in April.
“In Canada, the U.S. recovery will support growth, but high household debt and moderation in the housing sector are likely to weigh on private consumption and residential construction,” it said.
That has been the thinking for some time, but housing reports released this week suggest the slowdown in Canada’s housing market has been minor and perhaps fleeting.
Fresh data Tuesday showed starts for June remained well above fundamentals at 199,600 annualized, bringing the average monthly numbers in the second quarter to 194,600 units, an 11.5 per cent increase over the first.
The latest report from the Washington-based IMF gives little encouragement to those who have long been calling for the recovery from the crippling 2008-09 great recession to take root.
Instead, the IMF says the world economy is still in first gear and will take at least another year to come out of the slow lane.
It expects growth around the world will barely top three per cent this year, moderately lower than previously thought, and only start showing signs of life at 3.8 per cent in 2014. With emerging economies running at five, six and seven per cent rates, a 3.1 per cent advance is not considered strong for global activity.
And downside risks still dominate, the IMF adds, with some new ones coming on stream, including a longer growth slowdown in emerging countries such as China and India, tighter financial conditions, and a more protracted recovery from recession in Europe.
Given the soft conditions, the IMF says stronger growth will require additional policy action from governments, particularly from advanced economies.
“Specifically, major advanced economies should maintain a supportive macro-economic policy mix, combined with credible plans for reaching medium-term debt sustainability and reforms to restore balance sheets and credit channels.”
The IMF notes that government contraction in the United States has weighed on growth in that key economy, while Japan expanded better than expected in part due to accommodative policies that weakened the yen and strengthened net exports.
The IMF is particularly frustrated with the failure of European economies to emerge from their financial and economic nightmare. It now predicts the recession in the eurozone will last throughout 2013 and has downgraded the recovery in 2014 to a mere 0.9 per cent rebound.
“Over the past year, substantial actions at both the national and euro-wide levels have been taken to combat the crisis,” said IMF managing director Christine Lagarde.
But despite this progress, the economic recovery remains elusive, unemployment is rising and uncertainty is high. Additional policy measures are required to fully restore confidence, revive growth, and create jobs.”
The organization’s forecast for Canada in 2013 is aligned with many private and official projections, but the 2.2 per cent prediction for 2014 is well below the Bank of Canada’s 2.8 per cent figure.