IMF hikes Canadian growth outlook
The International Monetary Fund is raising its forecast for Canadian economic growth in 2018 and 2019, as tax reforms in the U. S. are expected to increase demand and give the entire North American economy a boost.
According to an update to the IMF’s fall report released Monday, the organization now believes Canada’s economy will grow by 2.3 per cent in 2018 and 2 per cent in 2019, up 0.2 and 0.3 percentage points respectively from its previous forecast.
Among the G7 countries, Canada and Germany will have the second- strongest growth rates at 2.3 per cent this year, trailing only the U. S. at 2.7 per cent.
The IMF expects corporate income tax reductions that are part of U. S. tax changes to increase investment and have a positive impact on U. S. growth through 2020. Lower U. S. growth is forecast for a few years after 2021, since some of the tax policies are temporary.
Overall, global growth for 2018 and 2019 is expected to be 3.9 per cent in 2018 and 2019.
Most of the IMF’s upward revisions were to forecasts for advanced economies, which as a group are expected to see growth of 2.3 per cent this year and 2.2 per cent in 2019.
The IMF does not expect crude oil prices to slow advanced economies as wage and core- price i nflation remain weak. The price of crude oil has risen about 20 per cent from last August to mid- December to over US$ 60 a barrel, but prices are expected to ease over the next four to five years.
The I MF sees downside risks increasing in the medium term.
“Risks to t he g l obal growth f orecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term,” it said.
It sees any tightening of global financing terms in the short term or beyond as one key threat to growth. A more modest investment response to the new U. S. tax policies could also negatively impact domestic growth and key trading partners.
In the medium term, continued low interest rates and low volatility in asset prices could result in investors seeking higher yields by increasing their exposure to riskier assets.
“As noted in the October 2017 Global Financial Stability Report, the share of companies with low investmentgrade ratings in advanced economy bond indices has increased significantly in recent years,” the IMF said.
Other risks include uncertainty with NAFTA negotiations and the expected departure of the U. K. from the European Union.
To support current and medium growth momentum, multilateral efforts including financial regulatory reform, modernizing trade f rameworks, and avoiding “races to the bottom in taxes, labour, and environmental standards” should be priorities, according to the report.