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OTTAWA – The International Monetary Fund has cut its growth outlook for the Canadian economy to just 1.0 per cent for the year, due to the drop in oil prices and reduced investment in the energy sector.
Source: IMF report cuts growth outlook for Canada to 1.0 per cent for this year
OTTAWA – The International Monetary Fund has cut its growth outlook for the Canadian economy to just 1.0 per cent for the year, due to the drop in oil prices and reduced investment in the energy sector.
The forecast, issued Tuesday, is down from the IMF’s expectation in July for Canadian growth of 1.5 per cent. The organization also lowered its Canadian outlook for 2016 to 1.7 per cent from 2.1 per cent.
Meanwhile, the IMF said the world economy would grow only 3.1 per cent this year, the lowest since 2009, although it increased its estimate for the United States to 2.6 per cent for this year from a July forecast of 2.5 per cent.
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 per cent to $6.3 billion, due to a 20.9 per cent drop in the value of crude oil and crude bitumen exports. For the group as a whole, prices fell 16.4 per cent while volumes increased 2.0 per cent.
However, exports of motor vehicles and parts rose 3.1 per cent to $7.8 billion due to a 4.5 per cent increase in exports of passenger cars and light trucks.
On the other side of the trade equation, imports of consumer goods increased 2.6 per cent to $10.0 billion, while metal and non-metallic mineral products rose 6.0 per cent 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 per cent, 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 per cent this year. However, the Canadian central bank predicts the economy will pick up to 2.3 per cent next year, ahead of the IMF’s 1.7 per cent prediction.
The central bank has cut its key interest rate twice this year taking it to 0.5 per cent in a bid to help a struggling economy hurt by a drop in the price of oil.

Post Author: David Mayes

Founder, Mayo615 Technology Partners Ltd., UBC adjunct faculty, Intel alumnus, technology assessment, international business, cleantech, fly fisherman, native Californian and citizen of France, who has been very fortunate to have traveled, lived and worked all over the globe. My wonderful wife, Isabelle has reintroduced me to my French Provençal heritage.

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