OTTAWA — Canada’s economy is blowing its G7 peers out of the water in terms of the speed and strength of its economic recovery, says a new outlook from a leading international organization.
The Paris-based Organization for Economic Development and Co-operation says Canada’s economy likely grew 6.2 per cent in the first quarter of this year, well ahead of the 1.9 per cent overall growth estimated for the other G7 countries.
And the 30-member organization, representing the world’s advanced nations including the G7, says Canada’s economy will continue to expand in the second quarter — the March-June period — at 4.5 per cent, about twice the G7 average.
“Canada is benefiting from its past good policies, in spite of the fact that Canada was severely hit through trade ...from south of the border,” said OECD chief economist Pier Carlo Padoan.
The United States, United Kingdom, Japan, Italy, Germany and France are the other G7 countries. Brazil, China, India and Russia aren’t currently full members of the OECD, despite the growing international importance of their economies.
Padoan noted that Canada had entered the recession with stronger fundamentals than its peers, in terms of growth, its banking sector and governmental fiscal position. Canada’s debt relative to its economy is the lowest in the G7.
The Canadian economy grew at a surprisingly strong five-per-cent clip during the last three months of 2009, and kept going in January with a 0.6 per cent monthly advance that surprised analysts.
As a result, several private sector economists have revised upwards their forecast for Canadian growth in the first half of this year, but few have put growth above six per cent in any quarter.
However, economists have cautioned that Canada’s economic growth will likely slow down, noting the Bank of Canada is expected to raise interest rates in June or July, which could reduce domestic borrowing and spending.
Overall, the OECD said it was moderately optimistic about the global economic picture, with the emerging economies experiencing strong growth that is pulling industrialized countries along.
“The bottom line is that the recovery is taking hold slowly,” Padoan said at a news conference. “Industry production is bouncing back strongly, business confidence is rebounding (and) that is extremely encouraging.”
Other encouraging developments are that financial conditions are improving and global trade has rebounded from the fall-off during the recession.
He said trouble spots remain, including high unemployment, which is only starting to peak in some countries.
The OECD study added that it expects growth in leading rich economies to slow somewhat after government stimulus is withdrawn.
Still, “overall it is an encouraging picture,” said Padoan.
The OECD forecasts that U.S. gross domestic product would rise 2.4 per cent in the first quarter and 2.3 per cent in the second quarter, down from 5.6 per cent in the fourth quarter of last year. Forecasts for Japan are 1.1 per cent and 2.3 per cent for the first two quarters of 2010, down from 3.8 per cent in the fourth quarter 2009.
Germany’s economy probably shrank in the first quarter, however, due to a slump in construction activity. The OECD estimates Germany’s economy contracted 0.4 per cent in the first quarter but growthe will bounce to 2.8 per cent in the second quarter.
The OECD urged rich governments to end stimulus programs next year or earlier to avoid sinking deeper into debt. But it warned that they should do so gradually and carefully.
“Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support,” the report said.
“Consolidation should start in 2011, or earlier where needed, and progress gradually so as not to undermine the incipient recovery.”