Lyle Stafford
The International Monetary Fund says Canada should maintain its economic stimulus program because risks to the country's recovery from recession remain.
Even though Canada is "relatively well positioned to resume expansion," a stronger dollar and weaker-than-expected global economic growth are possibilities that the federal government and Bank of Canada should take seriously, the head of the IMF's Canadian division said after a visit to the country.
"It will be essential to maintain a highly accommodative macroeconomic policy stance as intended until the economic recovery is firmly established, in light of risks on the horizon," Charles Kramer said in a statement released by the Washington-based IMF Thursday. "These risks include weaker-than-expected global growth and a further strengthening of the Canadian dollar."
The IMF's assessment backs the positions of both Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney. Mr. Flaherty told reporters on the weekend in Scotland that the recovery remains to fragile to consider letting up on government stimulus, and Mr. Carney indicated last month that he will leave the benchmark lending rate at a record low until at least June 2010, in part because the dollar's rise is curbing exports.
Mr. Kramer didn't provide a revised outlook for Canada. In October, the fund predicted Canada's gross domestic product would expand 2.1 per cent in 2010 - slow by pre-crisis standards, but the fastest of the Group of Seven major industrialized countries.
The IMF estimated last month that Canada's economy will contract 2.5 per cent this year, slightly better than the fund was projecting in July.
"Canada's economic outlook is improving," Mr. Kramer said. "The improving economic outlook reflects both the global recovery and a highly expansionary policy stance.
Financial conditions are getting back to normal, inflation pressures are "subdued" because of "sizeable" slack in the economy, banks are resilient, and Canada's "large fiscal stimulus package and unprecedented monetary easing" are supporting domestic demand, Mr. Kramer said.
Outside the country, Canada's trading partners also are benefiting from financial conditions that have stabilized, while trade has rebounded and economic activity is firming, the IMF said.
"Canada's resilience bears testimony to its strong and credible policy frameworks that responded proactively to the global crisis," Mr. Kramer said. "While the outlook is not without risks, maintaining supportive policies as the economy recovers can promote a timely return to sustainable growth."