OTTAWA -- The International Monetary Fund is preparing to slash its 2008 growth forecasts for Canada, the United States and the global economy because of the U.S. housing slump and the subprime mortgage crisis.
Canada's economy is now expected to grow just 2.3 per cent in 2008, down from a previously forecast 2.8 per cent, IMF sources told newswire services yesterday.
That would be the slowest pace of growth since Canada was hit with the SARS outbreak, mad-cow disease and a rising currency in 2003. (Last year, the Canadian economy grew 2.8 per cent, and is expected to expand by about 2.6 per cent in 2007.)
The IMF sources said the world economy is now expected to grow by 4.8 per cent in 2008, down from a July forecast of 5.2 per cent.
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The key reason for the downward revisions is the U.S. economy, where growth next year is forecast to be just 1.9 per cent - down from a previously expected 2.8 per cent.
Final numbers are to be released next week just before finance ministers and central bankers meet in Washington for biannual meetings of the IMF and the Group of Seven industrialized countries.
The IMF has warned publicly that global growth will take a hit from the U.S. slowdown, and it has also pointed out in the past that, of all the economies in the world, Canada and Mexico are the most vulnerable to a U.S. downturn.
Economists in Canada have also been scaling back their expectations for Canadian growth, as the credit crunch linked to the subprime mortgage crisis has pushed up lending rates and rattled markets in Canada, and as the U.S. housing slump deteriorates further.
Still, a spate of incredibly strong numbers over the past few days have stopped several economists in their tracks, and few are calling for a major downturn here.
"I think they [the IMF] are going to find themselves in the pessimistic camp," said Dale Orr, chief economist of Global Insight (Canada), a top forecasting firm.
His forecast for Canadian growth is 2.6 per cent for this year and next - very close to the consensus view.
The Bank of Canada's latest forecast for Canada, in July, also had Canada expanding at an average pace of about 2.5 per cent.
However, it's possible the central bank will revise its forecast in its quarterly report slated for next week.
While the credit crunch and bad news on U.S. housing have prompted second thoughts about Canada's resilience, huge downward revisions for Canada are scarce because economic data are looking strong, Mr. Orr said.
He pointed to numbers released in the past few days: robust employment data, an upbeat business outlook survey, and eye-popping numbers for housing starts.
September housing starts rose 19.6 per cent at an annualized rate, Statistics Canada said yesterday.
"Despite the tighter credit and lending conditions, the housing sector continues to be a major source of strength to the economic performance in Canada," said economist Millan Mulraine at Toronto-Dominion Bank.
Canada's jobless rate for September fell to 5.9 per cent, a 31-year low, after employers created 51,000 new jobs. And the Bank of Canada's quarterly business outlook survey last week indicated the economy is running at full speed.
Trade data to be released later this week will likely tell a weaker story, since exports have been made continually more expensive because of the rapid and persistent appreciation of the Canadian dollar, economists warned.
But Canada also continues to thrive compared with the United States because of high oil prices, Mr. Orr added. "We have fared obviously much better than they have," he said.
The Canadian economy does not seem to have been touched deeply by the credit crunch, economists said, but the U.S. housing slowdown is definitely taking a toll on key Canadian industries.
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