Canada is on track to lead the world's wealthiest countries out of recession next year, a testament to sound economic policy and weak competition, according to the International Monetary Fund's latest outlook.
The world's gross domestic product will expand 3.1 per cent in 2010, compared with a July estimate for growth of 2.5 per cent, the IMF says in its biannual report on the economy, providing further evidence that governments have successfully arrested the worst global recession since the Second World War.
Still, the fund economists who wrote the latest World Economic Outlook aren't exactly enthusiastic about their upwardly revised forecast. While better than the projected 1.1-per-cent contraction in 2009, the 2010 forecast compares with global growth of about 5 per cent before the financial crisis hit. The rebound from recession foreseen by the IMF is slow by historical standards and built on shaky foundations.
"According to these forecasts, the current rebound will be sluggish, credit constrained and, for quite some time, jobless," the report says.
Sluggish or not, the IMF report reinforces Prime Minister Stephen Harper's boast that his and Finance Minister Jim Flaherty's policies have helped the Canadian economy weather the financial crisis better than most. Going into the financial crisis, Canada enjoyed a relatively strong fiscal picture, with federal budget surpluses and debt levels below many other industrial nations. Like other nations, though, Canada now expects deficits for several years.
The IMF's forecasting department, led by chief economist Olivier Blanchard, made the report available to reporters ahead of the official release Thursday in Istanbul.
The IMF says Canada's GDP will expand 2.1 per cent in 2010, compared with the previous forecast of 1.6 per cent and this year's estimated 2.3-per-cent contraction.
That's faster than all of the other members of the Group of Seven industrial nations (Canada, United States, Japan, Germany, Britain, France and Italy). Japan, with estimated growth of 1.7 per cent next year, comes closest to Canada's mark. The economies of Spain and Australia also will expand more slowly than Canada's in 2010, according to the IMF.
Recent indictors of industrial production, retail sales and confidence suggest Canada's economy is "stabilizing" after a "severe" recession, the IMF said. Along with Australia and New Zealand, rising commodity prices and early signs of a revival in world trade position Canada for a "modest" recovery, the fund said.
"Australia, Canada and New Zealand took advantage of the prolonged period of prosperity in the runup to the current global recession to put in place sound macroeconomic and regulatory frameworks," the report said. "As a result, they have had ample room to implement expansionary policies to limit the damage from the global recession and to support recovery as needed."
The deficits of all three of those countries are small enough to allow their governments to spend more on economic stimulus if the recovery falters, the IMF said.
While that's not what they foresee, the fund's economists said the risks to their forecast are tilted to the downside.
The only sure economic growth is in Asia, where China's massive stimulus program - valued at about 5 per cent of GDP, compared with an average in Group of 20 countries of about 2 per cent - is powering domestic demand that is giving a lift to many of the trading nations in its neighbourhood.
But China can't generate enough demand to make up for weaker consumption in the United States and Europe, where confidence remains shaky after the financial crisis wiped out hundreds of billions in wealth and unemployment rates are projected to climb above 10 per cent.
Chinese consumption is only about a quarter of that in the United States, the IMF said.
The current signs of economic recovery are the result of some $5-trillion (U.S.) in discretionary government spending and payouts from social programs; extraordinary measures by central banks to ease borrowing costs; and the rebuilding of inventories, which companies around the world allowed to dwindle after the financial crisis caused demand to evaporate last autumn.
That's better than it was, but recovery is far from assured, putting the onus on policy makers to leave their stimulus programs in place through to at least next year because governments remain the sole sources of demand in the global economy, the IMF says.
"Firms are still going bankrupt at a high rate, employment continues to drop, and private consumption and investment remain anemic as households struggle with income and wealth losses, firms operate with large excess capacity, and lending conditions remain tight," the report says.
The IMF will release the report officially Thursday in Istanbul, where finance ministers, central bankers and other officials from its 186 member countries are gathering for the institution's annual meeting.
Yesterday, the fund released its biannual review of financial markets, revising its tally on the financial institutions' losses during the crisis to $3.4-trillion, a reduction of about $600-billion from its previous forecast. Jose Vinals, the IMF's head of financial markets, said the financial system has stabilized, but remains under strain. Banks still need to raise capital, and governments must refocus on removing toxic assets from their books.
"We are on the road to recovery, but that doesn't mean risks have disappeared," Mr. Vinals said.Report Typo/Error