Canada has so far skirted much of the impact of the global economic storm, but the world’s biggest lending body is warning few countries will feel safe until Europe deals with its financial crisis — and quickly.
"Simply put, the euro periphery countries have to succeed," Olivier Blanchard, the International Monetary Fund’s chief economist, said Monday.
While progress was made at last month’s Europe summit to ease the "adverse links between sovereigns and banks and create a banking union," the IMF said in a report that "timely implementation of these measures, together with further progress on banking and fiscal unions, must be a priority."
In a revised outlook, the 188-nation IMF shaved 0.1 percentage point off its global growth estimate for this year, to 3.5%. Its previous forecast in April was also cut for 2013, down 0.2 points to 3.9%.
Canada fared better than most, with its outlook adjusted slightly higher to 2.1% for 2012. That’s up from 2.0% in the IMF’s April forecast. Growth in 2013 was unchanged at 2.2%. Still, that performance would be weaker than the Bank of Canada’s estimate of 2.4% growth in both years.
The economy in the 17-nation euro-zone will decline 0.3% this year and increase 0.7% in 2013, according to the IMF. That’s unchanged from the April estimate for this year but down 0.2 points from the initial 2013 estimate.
The U.S., meanwhile, is expected to grow 2.0% and 2.3% in 2012 and 2013, respectively. That’s a downward adjustment of 0.1 point for both years.
Paramount among these risks would be an unresolved — and perhaps even escalating — financial crisis in Europe. As well, the U.S. could become politically paralyzed by debate over its own fiscal problems — in particularly its debt ceiling —in the middle of a presidential election. Also, global growth might slow further if major emerging markets don’t provide simulative spending to re-ignite growth.
The IMF report does not include an analysis of Canada, providing only projections.
Meanwhile, a weakening global outlook could prompt the Bank of Canada to tone down the wording in its latest decision on interest rates Tuesday morning, although any move to hike borrowing costs — currently at a near-historic low of 1% — is not likely until next year.
As with the IMF, much has changed for the worse since the central bank’s April economic outlook for Canada.
Bank governor Mark Carney and his policy advisors could signal a weaker domestic growth outlook Tuesday and elaborate on its concerns — and likely downgrade its outlook for the domestic economy — Wednesday when it releases its quarterly monetary policy report.
Related Stories
