IMF’s Weak Outlook on Canadian Economy May Be Too Optimistic

IMF Cuts Canadian 2019 GDP Growth to 1.5%

The U.S. economy is chugging along, but the same cannot be said for the Canadian economy. In fact, the International Monetary Fund (IMF) cut its outlook for the Canadian economy and global growth. For Canada, the IMF cut the country’s economic outlook to 1.5%. But even that may be too optimistic. Others believe the Canadian economy will run out of steam at 1.3% in 2019. All of which suggests a recession is coming sooner rather than later. The IMF is taking an increasingly pessimistic look at the Canadian economy. In January, the fund said it thought the Canadian economy would advance 1.9% in 2019. Fast forward three months and the IMF now thinks Canadian gross domestic product (GDP) will accelerate just 1.5%. The Canadian economy will have to wait until 2020 before GDP hits 1.9%.¹ The organization blamed the lowered forecast on trade conflicts and low oil prices. Canada’s sluggish housing market isn’t helping either. Still, some believe the IMF’s dour outlook on the Canadian economy is too pessimistic. Instead of posting a 1.5% gain in 2019, economists believe Canadian growth will hit a wall at 1.3% and improve to just 1.55% in 2020; well below the IMF’s 2020 prediction of 1.9%. That’s also below the 1.8% five-year average growth rate announced in the 2019 federal budget. Outside of Canada, the global economy is expected to grow 3.3% in 2019, down from the 3.5% prediction the IMF forecast in January. This is the third time in just six months that the IMF has cut its economic projections. If global economic growth is just 3.3% in 2019, it would be the weakest since the 2009 financial crisis, the year the global economy contracted. The organization blamed slowing global growth on trade tensions between the U.S. and China, the world’s two biggest economies; uncertainty around Brexit; a slowing Chinese economy; and economic concerns in advanced economies. Canadian economic headwinds and trade tensions are a growing concern on Bay Street and have begun to erode business confidence. The Bank of Canada’s business sentiment gauge turned negative and fell to its lowest levels since 2016.² The perfect storm of global trade wars, slumping oil prices, and sluggish housing market is taking its toll on the Canadian economy, with more and more businesses reporting falling sales and expectations for future sales muted. This has also led many to suggest that the Bank of Canada will keep its key lending rate on hold.

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1. “World Economic Outlook, April 2019 Growth Slowdown Precarious Recovery”, International Monetary Fund, April 9, 2019; https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019.
2. “Business Outlook Survey—Spring 2019”, Bank of Canada, April 15, 2019; https://www.bankofcanada.ca/2019/04/business-outlook-survey-spring-2019/

Photo Credit: iStock.com/Evgeny Gromov