The International Monetary Fund (IMF) has trimmed its growth projections for the Canadian and global economies over the next two years.
In the latest edition of its economic outlook released Wednesday, the Washington, D.C.-based IMF projects that global growth will increase in 2013, “as the factors underlying soft global activity are expected to subside.”
“However, this upturn is projected to be more gradual,” than in its October 2012. The IMF now sees 3.5% global growth this year, and 4.1% next year, down by 0.1 percentage points in both cases.
For Canada, the IMF projects 1.8% growth this year and 2.3% next year, down 0.2 and 0.1 percentage points, respectively.
The IMF notes that recent policy actions have “lowered acute crisis risks” in the euro area and the United States. “But in the euro area, the return to recovery after a protracted contraction is delayed,” it says. Indeed, Europe is now expected to contract by 0.2% in 2013 instead of expanding by 0.2%, it says. “This reflects delays in the transmission of lower sovereign spreads and improved bank liquidity to private sector borrowing conditions, and still-high uncertainty about the ultimate resolution of the crisis despite recent progress,” it notes.
“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States,” it says, adding, “Policy action must urgently address these risks.”
The IMF says that global financial conditions improved in the fourth quarter of 2012. “However, a broad set of indicators for global industrial production and trade suggests that global growth did not strengthen,” it notes.
For the U.S., it says that, “a supportive financial market environment and the turnaround in the housing market have helped to improve household balance sheets and should underpin firmer consumption growth in 2013.”
Whereas, Japan is back in recession, which is expected to be short-lived “because the effects of temporary factors, such as the car subsidy and disruptions to trade with China, will subside.” It’s also seeing fiscal and monetary easing to boost growth.
Growth in emerging market and developing economies is on track to build to 5.5% in 2013, the IMF says. But, it’s not expected to rebound to the high rates recorded in 2010–2011, as the weakness in advanced economies will weigh on external demand, and “the space for further policy easing has diminished, while supply bottlenecks and policy uncertainty have hampered growth in some economies (for example, Brazil, India),” it says.