OECD trims outlook for Canadian economy

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The Organization for Economic Co-operation and Development has trimmed its outlook for the Canadian economy, as it sees the global economic recovery evolving more slowly than it had previously expected.

In the OECD's preliminary fall update of its twice-annual world economic outlook, the international economic research and policy group forecast that Canada's gross domestic product will grow by 2.3 per cent this year, down from its May projection of 2.5 per cent. It predicted growth of 2.5 per cent in 2015, down from 2.7 per cent in May.

The Canadian downgrade is largely in line with the OECD's declining optimism in the global economy. It now sees world growth of 3.3 per cent this year and 3.7 per cent next year, down from its May forecasts of 3.4 per cent and 3.9 per cent, respectively.

"Global growth is projected to strengthen, but will remain modest by past standards," the organization said in its report. It also warned that "there are substantial downside risks to the outlook," including still-high financial instability, volatile markets, divergent monetary policy and still-high debt levels in many countries. It also said that "monetary policy needs to remain accommodative in most countries, and become more so in the euro area."

The new projections include a substantial downgrade in growth expectations for the euro zone, as well as predicting further slowing of China's growth.

The OECD will publish its full world outlook on Nov. 25, but wanted to release a preliminary version, including its revised projections, in advance of the G20 leaders' meetings in Brisbane on Nov. 15-16.

The report included the OECD's first forecast for 2016, projecting that global growth will rise slightly to 3.9 per cent that year. However, it forecast that Canada's growth in 2016 would slow slightly, to 2.4 per cent.

Despite the tepid Canadian outlook, Canada's projected growth nevertheless puts it near the top of advanced economies for next year. The United States is expected to be the advanced world's leader, with forecasted growth of 3.1 per cent in 2015, followed by the United Kingdom at 2.7 per cent. Canada's 2.5 per cent is next, tied with Australia.

"In the United States, there is a sustained impetus to private spending from solid increases in employment, favourable financial conditions and monetary policy support, and the slowing pace of fiscal consolidation," the report said. "Unemployment continues to fall, but pockets of labour market slack remain. and price pressures remain weak."

Growth in the euro zone was cut to 0.8 per cent this year and 1.1 per cent next year, from the May projections of 1.2 per cent and 1.7 per cent, respectively. But the OECD did predict that euro zone growth would rise to 1.7 per cent in 2016.

"The planned slowdown in the pace of fiscal consolidation, stronger financial conditions (related in part to progress on the banking union) and further monetary stimulus should support the recovery," the OECD said. "Absent this macroeconomic support, the growth performance of the euro area will be much weaker than projected here. Demand, regardless, will remain below potential due to continued credit weakness and private-sector deleveraging. Unemployment will stay high and inflation will remain below target."

The OECD sees China's economic growth slowing, from 7.3 per cent this year to 7.1 per cent next year and 6.9 per cent in 2016. That's also down slightly from the May forecasts, which pegged growth at 7.4 per cent this year and 7.3 per cent next year.

"In China, growth has slowed modestly as the property cycle has turned, leading to weaker activity in construction … and contributing to slower consumption growth," the report said.