IMF tells Canada to keep supporting growth
OTTAWA — The International Monetary Fund is advising Canadian policy-makers against pulling too hard on the reins of austerity, saying in a new forecast that the economy remains weak and vulnerable to shocks.
The IMF said Tuesday that Canada’s economy will likely slow to about 1.5 per cent this year from 1.8 last year, before picking up to 2.4 per cent in 2014. As well, the Washingtonbased global financial organization warns that the risks for Canada are mostly tilted to the wrong side, with a chance of a weaker outcome should the European crisis worsen, the United States not grow as strongly as projected, commodity prices fall or household indebtedness grows.
“The main challenge for Canada’s policy-makers is to support growth in the short term while reducing the vulnerabilities that may arise from external shocks and domestic imbalances,” the body advises. “Although fiscal consolidation is needed to rebuild fiscal space against future shocks, there is room to allow automatic stabilizers to operate fully if growth were to weaken further.”
The statement appears to walk the line between backing Finance Minister Jim Flaherty’s latest stand-pat budget that did not add significantly to already announced austerity measures, while also stressing that if conditions deteriorate, Ottawa should loosen economic stabilizers such as unemployment insurance and other support systems to promote growth.
The report did not mention Flaherty’s self-imposed deadline of balancing the budget by 2015, when Canada will have its next federal election.
Central bank governor Mark Carney has mostly withdrawn language suggesting interest rates hikes were around the corner, although the guidance still nominally points to higher rates.