The International Monetary Fund has again upgraded its projection for Canada's economy, but the latest outlook from the international financial organization shows it is far from sold on the country's underlying fundamentals.
"Downside risks to the outlook still dominate, including from weaker-than-expected exports resulting from competitive challenges, lower commodity prices and a more abrupt unwinding of domestic imbalances," it warns.
The IMF predicts Canada's economy will expand by 2.3% this year — one-10th of a point more than it projected three months ago — and continue to pick up speed to 2.4% in 2015.
Those numbers are a little softer than private sector forecasts — as well as south of the Bank of Canada's 2.5% projection for both years — but in line with the IMF's recent bearish assessment of Canada, which has included dire warnings about a housing correction.
And it now places Canada in third place behind the United States and the United Kingdom for growth among the Group of Seven industrialized countries in both 2014 and 2015.
The Washington-based institution, which acts an a monitor of global economies and lender of last resort for troubled countries, does acknowledge that Canada is positioned to benefit from the U.S. resurgence, which should boost Canadian exports and business investment.
That could lead to a situation where "external demand could surprise on the upside" and the economy outperforms projections.
But the IMF advises policymakers against counting their chickens too soon. The rotation from domestic to external demand hasn't happened yet, so the Bank of Canada should keep interest rates low and Ottawa "needs to strike the right balance" between supporting growth and driving too hard to balance the budget, it says.
The salvation of Canada's economy, the IMF says, will be renewed demand from the United States, which should boost exports and drive business investment.
