Overall growth in advanced economies is only expected to hit 1.4% this year
OTTAWA: The International Monetary Fund (IMF) is calling for further government action amid signs the recovery is faltering in many countries, although Canada’s outlook has held up better than most other advanced economies.
The 188-country organization expects Canada’s economy will grow modestly, by 2.1% this year and 2.2% next year – virtually unchanged from the IMF’s forecast in April.
That’s not the case in many parts of the world.
The IMF’s July outlook warns that, after a better-than-expected start to the year, growth is slowing in many parts of the world, shaving two-tenths of a point off of the IMF’s 2013 estimate, which falls to 3.9%.
The 2012 growth estimate has also been reduced, by one-tenth of a point to 3.5%.
The expansion is mostly due to strong, if moderating, growth rates in the emerging economies and smaller advanced economies, such as Australia.
Overall growth in advanced economies is only expected to hit 1.4% this year and 1.9% in 2013, very weak levels, with some nations faring far worse.
Some countries in the euro area are in recession and at best can expect minuscule growth next year, the IMF says.
The US growth projected at 2% per cent and 2.3% in 2012 and 2013, one-tenth of a point less than before and not enough to decrease unemployment.
Even emerging market expansion is moderating because weakness in Europe and US is dampening demand for their exports.
But it is not a few percentage points of gross domestic product that has the Washington-based economic watchdog most concerned – it’s the rising risk that Europe will go off the rails, and to a lesser extent, the US as well.
It particularly singles out Italy and Spain, which it says must be prevented from collapsing.
“More worrisome than these revisions to the baseline forecast is the increase in downside risks,” said Olivier Blanchard, the IMF’s chief economist.
“Italy and Spain have to succeed,” he added. “They have to do what’s needed to succeed, they have to do the adjustment in competitiveness, which is tough, they have to do fiscal consolidation, which is tough.
“But that’s not enough, they are in a very deep hole (and) they need help from other euro members.”
In addition, the IMF says the US must avoid at all costs an abrupt withdrawal of fiscal stimulus. And emerging economies should be on the watch for signs of trouble and prepared to take action.
The IMF does not mention Canada in its analysis, other than placing it in the table of economic projections. Canada places No. 2 among the Group of Seven countries in terms of growth, with Japan at No. 1 this year with 2.4% and the US in top spot at 2.3% growth in 2013.
The Canadian growth rates forecast by the IMF are below the Bank of Canada’s call of 2.4% both years, but in line with most private sector economists, who have been downsizing expectations the past few months.
© 2012 The Canadian Press