IMF ap­proves han­dling of econ­omy

But warns chal­lenges still face Canada, like real es­tate prices, NAFTA and un­cer­tainty com­ing out of Wash­ing­ton D.C.

The Hamilton Spectator - - CANADA & WORLD - LEE BERTHI­AUME

OT­TAWA — The In­ter­na­tional Mon­e­tary Fund has given the Trudeau gov­ern­ment a pass­ing mark for its han­dling of the econ­omy since com­ing to power, but warns that “more dif­fi­cult chal­lenges lie ahead.”

The com­ments are con­tained in an an­nual re­port re­leased by the Wash­ing­ton-based or­ga­ni­za­tion Thurs­day that cred­ited the Lib­er­als with help­ing the Cana­dian econ­omy re­gain mo­men­tum.

“To sup­port the econ­omy, the gov­ern­ment in­tro­duced tax cuts for the mid­dle class, ex­panded fam­ily ben­e­fits, and raised in­fra­struc­ture spend­ing,” the re­port said.

The bil­lions of dol­lars in ad­di­tional spend­ing com­bined with the Bank of Canada’s his­tor­i­cally low in­ter­est rates, “has suc­ceeded in re­vi­tal­iz­ing the econ­omy after a tough year in 2015,” the re­port said.

At a news con­fer­ence on Par­lia­ment Hill to an­nounce former as­tro­naut Julie Payette as the next Gover­nor Gen­eral, Prime Min­is­ter Justin Trudeau touted his gov­ern­ment’s ap­proach to the econ­omy.

“We’re go­ing to con­tinue to de­liver on the com­mit­ments and the prom­ises we made in the last elec­tion and in the throne speech we pre­sented 18 months ago,” he said.

“Now is not the time to change from the strong ap­proach that’s de­liv­er­ing for Cana­di­ans. Now is the time to con­tinue on the hard work we’re do­ing to help Cana­dian fam­i­lies.”

Yet the IMF also raised alarm bells about the amount of un­cer­tainty in Wash­ing­ton, and its po­ten­tial im­pact on Canada’s econ­omy over the long term.

Among the is­sues was whether the Trump ad­min­is­tra­tion would sig­nif­i­cantly cut cor­po­rate taxes, which would make Canada less at­trac­tive to in­vestors, and the fu­ture of NAFTA.

The IMF also cited ma­jor con­cerns about Canada’s hous­ing mar­ket, warn­ing that any sud­den de­cline in prices could send shock­waves across the coun­try.

“The main risk on the do­mes­tic side is a sharp cor­rec­tion in the hous­ing mar­ket that im­pairs bank bal­ance sheets, trig­gers neg­a­tive feed­back loops in the econ­omy and in­creases con­tin­gent claims on the gov­ern­ment,” the re­port said.

There were also wor­ries about the im­pact of fur­ther oil price de­clines.

One of the IMF’s pre­scrip­tions for main­tain­ing the econ­omy’s mo­men­tum was to keep in­ter­est rates low.

After the re­port was writ­ten, but be­fore it was re­leased, the Bank of Canada raised its key in­ter­est rate for the first time in seven years on Wed­nes­day, from 0.5 per cent to 0.75 per cent.

Cheng Hoon Lim, the IMF’s mis­sion chief for Canada, said the rate in­crease re­flected the fact the econ­omy has been do­ing well over the past few months, though he ad­vised the Bank of Canada to take things slow.

“We wel­come the good news on the econ­omy and note that even with the rate hike, mon­e­tary pol­icy re­mains ap­pro­pri­ately ac­com­moda­tive,” Lim said.

“Given the con­sid­er­able un­cer­tainty around the growth and in­fla­tion out­look, the Bank should con­tinue to take a cau­tious ap­proach in fur­ther ad­just­ing the mon­e­tary pol­icy stance.”

The re­port also ad­vised the fed­eral gov­ern­ment to con­tinue with its plan to in­vest bil­lions more on in­fra­struc­ture over the next decade, though it said the deficit should start to come down next year.

De­spite signs the econ­omy was start­ing to turn around, the IMF found that two im­por­tant en­gines of growth had not met ex­pec­ta­tions: pri­vate sec­tor in­vest­ment and nonen­ergy ex­ports.

The main risk on the do­mes­tic side is a sharp cor­rec­tion in the hous­ing mar­ket.

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