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Canada leads G7 in economic growth: IMF

Thursday, July 27, 2017 > 14:09:05
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The Globe and Mail

Canada’s economic growth spurt this year has moved it into a leading role in what is shaping up as an encouraging resurgence in the global economy in 2017, the International Monetary Fund said Monday.

In the quarterly update of its closely watched World Economic Outlook, the international financial institution sharply upgraded its 2017 growth forecast for Canada to 2.5 per cent, from 1.9 per cent in its spring outlook. That would make Canada the fastest-growing economy among the G7 countries, in what the IMF describes as a year of gathering momentum in the on-again, off-again global economic recovery.

The IMF projected global real gross domestic product growth of 3.5 per cent this year and 3.6 per cent next year, up from 3.2 per cent in 2016. While those were unchanged from its spring forecasts, the agency expressed stronger confidence that a cyclical upswing in the world economy has taken hold.

“The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world’s gain in momentum,” said Maurice Obstfeld, the IMF’s chief economist, in a commentary accompanying the update.

“Recent data point to the broadest synchronized upswing the world economy has experienced in the last decade.”

And the momentum in both Canada and the world at large is picking up despite what the IMF now sees as weaker prospects for the United States, the world’s biggest economy, which in recent years has been the leading force in the global recovery. The IMF lowered its U.S. growth projections to 2.1 per cent this year and next year, down from 2.3 per cent for 2017 and 2.5 per cent for 2018. In doing so, it expressed fading confidence that the Trump administration will deliver the previously expected economic boost from its pledged tax cuts and infrastructure spending increases.

“The major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of U.S. fiscal policy changes,” the update report said.

But while the U.S. outlook has clouded somewhat, the IMF doesn’t see that as an impediment to that country’s biggest trading partner, Canada. While the report didn’t go into great detail about the upward revision in the Canadian outlook, it noted that “buoyant domestic demand” had fuelled a strong 3.7-per-cent annualized growth pace in the first quarter, and “indicators suggest resilient second-quarter activity.”

Expectations for Canadian second-quarter growth have been rising as more of the quarter’s economic indicators roll in, including Monday’s report of a strong 0.9-per-cent jump in wholesale trade in May from April, building on last Friday’s report of a 0.6-per-cent monthly rise in retail sales. Canada’s GDP report for May comes out at the end of this week, with economists generally anticipating month-over-month growth of a healthy 0.2 per cent, matching April’s pace. Many economists believe second-quarter growth could top the Bank of Canada’s estimate of 3-per-cent annualized growth.

Mr. Obstfeld noted that global trade has also gained momentum, “with volumes projected to grow faster than global output in the next two years” – an encouraging development for an export-intensive economy such as Canada.

While the upgrade from such an important voice as the IMF is a feather in the cap of Canada’s resurgent economy, the institution typically comes late to the game in recognizing changes in Canada’s economic growth trajectory, and this time is no exception. Indeed, it may still have some catching up to do with improvements to the outlook that other key economic forecasters, both inside and outside Canada, have already incorporated. Last month, the Organisation for Economic Co-operation and Development upgraded its 2017 growth forecasts to 2.8 per cent; earlier this month, the Bank of Canada matched that figure. The average forecast among Canada’s big-six private sector banks is 2.7 per cent.

Also dulling the impact somewhat is the fact that the IMF trimmed its 2018 growth forecast for Canada slightly, implying that it thinks that this year’s strong growth will eat up a bit of the demand that it had anticipated for next year. It projected just 1.9 per cent growth in 2018, down 0.1 percentage point from its spring forecast.

The IMF has also turned more bullish on many other G7 economies, raising its forecasts across the major euro zone countries and nudging Japan’s 2017 outlook slightly higher. It also modestly raised its forecasts for China, as well as emerging economies overall.


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