OTTAWA — Canada’s economy will pick up speed in 2014, thanks in great part to stronger growth in the United States, as both countries shake off a chilling start to the year, the world’s key lending agency said Tuesday.
A recurring concern of the Washington-based IMF is the still-to-be-realized rebalancing of growth from household consumption and residential construction toward exports and business investment — an issue that also remains a concern of Canadian policymakers.But the International Monetary Fund, in its latest analysis of global growth and trends, urged the Bank of Canada to hold off raising its key interest rate “until growth gains further traction.”
Even so, the agency pointed to healthier growth in the U.S. — our largest trading partner — as a sign that Canadian exports and business investment will grow.
Growth is expected to rise to 2.3% in 2014, up from 2% in 2013, with the projected pickup in the U.S. economy boosting Canada’s export and business investment.
The outlook for Canada this year is slightly less optimistic than the 2.5% forecast by the Bank of Canada and generally supported by private-sector economists.
“Although external demand could surprise on the upside, downside risks to the outlook still dominate, including from weaker-than-expected exports resulting from competitiveness challenges, lower commodity prices, and a more abrupt unwinding of domestic imbalances,” the IMF said.
“Indeed, despite the recent moderation in the housing market, elevated household leverage and house prices remain a key vulnerability. With inflation low and downside risks looming, monetary policy should remain accommodative until growth gains further traction.”
The Bank of Canada’s trendsetting lending rate has been at a near-record low of 1% since September 2010. In October, bank governor Stephen Poloz dropped its pro-rate-hike stance, saying instead that policymakers had adopted a neutral position — meaning borrowing costs could eventually go down if the economic data deteriorates.
The U.S. economy is predicted to advance by 2.8% in 2014, building on much-weaker 1.9% growth last year and leading to 3% in 2015. “Consumer spending also picked up, boosted by higher house and stock prices and a further decline in household debt relative to disposable income, which raised household net worth above its long-term average,” the IMF said.
The agency placed Canadian growth third among its industrialized counterparts for both this year and next — behind the U.S. as well as the U.K., which is forecast to expand 2.9% in 2014 and 2.5% in 2015.
Globally, the IMF expects growth of 3.6% this year and 3.9% next year.
“Activity in many emerging market economies has disappointed in a less favourable external financial environment, although they continue to contribute more than two-thirds of global growth” the report said.