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IMF report cuts growth outlook for Canada to 1% for this year

Organization also lowered its Canadian outlook for 2016 to 1.7% from 2.1%.


October 7, 2015
by The Canadian Press

OTTAWA — The International Monetary Fund has cut its growth outlook for the Canadian economy to just 1% for the year, due to the drop in oil prices and reduced investment in the energy sector.

The forecast, issued Oct. 6, is down from the IMF’s expectation in July for Canadian growth of 1.5%. The organization also lowered its Canadian outlook for 2016 to 1.7% from 2.1%.

Meanwhile, the IMF said the world economy would grow only 3.1% this year, the lowest since 2009, although it increased its estimate for the US to 2.6% for this year from a July forecast of 2.5%.

A major contributor to Canada’s slowdown, it said, was lower capital spending in the oil sector.

“In commodity exporters, lower commodity prices weigh on the outlook through reduced disposable income and a decline in resource-related investment,” the IMF said.

“The latter mechanism has been particularly sharply felt in Canada, where growth is now projected to be about one per cent in 2015, 1.2 percentage points lower than forecast in April.”

The downgrade by the IMF came as Statistics Canada reported the country’s trade deficit with the world increased to $2.5 billion in August as exports posted their biggest drop since 2012 due to a sharp fall in oil prices. Economists had expected a trade deficit of $1.2 billion for the month, according to estimates compiled by Thomson Reuters.

Statistics Canada also updated its reading for July to show a deficit of $817 million compared with its initial reading of a $593-million deficit.

CIBC economist Nick Exarhos noted soft energy prices and temporary disturbances to more regular trade patterns played a role in August.

“It’s clear that the cheaper loonie still needs time to have its full effect in lifting Canadian export volumes,” Exarhos said.

Canada’s exports in August fell 3.6 per cent from the previous month to $44 billion, while imports edged up 0.2 per cent to $46.5 billion.

Exports in the energy sector fell 14.7% to $6.3 billion, due to a 20.9% drop in the value of crude oil and crude bitumen exports. For the group as a whole, prices fell 16.4% while volumes increased 2%.

However, exports of motor vehicles and parts rose 3.1% to $7.8 billion due to a 4.5% increase in exports of passenger cars and light trucks.

On the other side of the trade equation, imports of consumer goods increased 2.6% to $10.0 billion, while metal and non-metallic mineral products rose 6% to $3.9 billion.

Economist David Madani of Capital Economics said given the earlier strength in exports, the economy is still on track for growth of around 2.5%, ahead of the Bank of Canada’s forecast.

“After suffering a mild recession in the first half of the year, it appears that the economy returned to growth in the third quarter,” he said.

However, Madani also noted that imports were largely unchanged.

“This persistent weakness in import volumes is a sign of soft domestic demand,” he said.

The Canadian economy began 2015 by sliding into recession with back-to-back quarters of contraction. However economists predict the third quarter will show growth.

The IMF forecast for the economy is slightly more pessimistic than the Bank of Canada’s prediction that the economy will grow by 1.1% this year. However, the Canadian central bank predicts the economy will pick up to 2.3% next year, ahead of the IMF’s 1.7% prediction.

The central bank has cut its key interest rate twice this year taking it to 0.5% in a bid to help a struggling economy hurt by a drop in the price of oil.

© 2015 The Canadian Press

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