The Canadian economy will boom even stronger than anticipated this year but its expansion will likely quiet somewhat in 2011 as the world economy sees slower growth, according to a global financial watchdog.
The International Monetary Fund on Thursday bumped up its prediction for Canadian growth in 2010, raising its forecast to 3.6 per cent from an April estimate of 3.1 per cent. But for next year, the agency lowered its projection for Canadian growth by 0.4 percentage points to 2.8 per cent.
“This year we’re getting the large cyclical recovery — inventory rebuilding, fiscal monetary stimulus — we’re essentially at the peak of that support coming through the economy,” said Adrienne Warren, an economist at Scotiabank.
“We see, and the IMF as well, a fairly strong performance in 2010 but as we go through the year and into next year, we lose some of that support.”
Advanced economies are projected to grow by 2.6 per cent this year and 2.4 per cent in 2011, putting Canada’s performance consistently ahead of the pack.
The IMF also made more optimistic projections for the economies of the U.S. — to 3.3 per cent from 3.1 per cent — China and the world in general, after a five per cent jump in global gross domestic product in the first quarter of 2010.
“This was better than expected in the April 2010 (report), mostly due to robust growth in Asia,” the fund said in its report.
The April forecast was made as fears over European government debt shook investor confidence in the global recovery, sending commodity prices — integral to the Canadian economy — lower and markets into a tailspin.
World economic growth estimates also got upward revisions — to 4.6 per cent from 4.2 per cent this year and by 0.8 percentage points to 4.3 per cent next year.
Slower global growth next year will weigh on global trade and on Canada’s export volumes, Warren said.
“These are just some negatives that weigh — they don’t derail the recovery but they tend to result in a little bit slower growth profile,” she said.
The IMF raised its 2011 forecast for the U.S. by 0.3 percentage points to 2.9 per cent, just ahead of Canada’s pace.
It’s not surprising that the Canadian and U.S. economies will converge even closer next year because the countries’ economies are so intimately linked, Warren said. However, she added that Canada’s economy should still outpace the U.S. on average during 2010 and 2011.
The revised IMF predictions are driven by stronger-than-anticipated growth in emerging markets and more resilient global economic activity than had been anticipated, according to Martin Schwerdtfeger, an international economist at TD Bank.
“(But) fears over contagion have eased slightly,” Schwerdtfeger said.
TD Bank is predicting global growth of 4.1 per cent global growth this year, but Schwerdtfeger said 4.6 per cent is not unfeasible.
But he added it’s important to keep in mind that such predictions come out about a month after data are collected and that the fallout from financially-troubled European countries is not over.
“The fact that most of these fiscal tightening measures and fiscal consolidation plans that are being put in place or that have been proposed by most of the advanced economies are really going to take bite next year,” said Schwerdtfeger.
“That’s a very solid argument to suggest that economic growth is going to be much weaker next year than we were previously anticipating.”
The IMF said Thursday a global relapse into recession is “very unlikely,” but added that financial turbulence in global markets points to slowing growth in 2011.
Risks so far are limited to financial markets and activity in other fields stabilized at a high level in May, the IMF said.
It said industrial output and trade grew by double digits and there was a modest but steady recovery in developed economies and strong growth in emerging nations.
Many Canadian economists have anticipated a slowdown in the country’s strong economic output that began in the second half of 2009, and evidence of a decrease is emerging in economic data from the second part of 2010.
Following seven months of robust growth, the country’s real gross domestic product — the broadest measure of economic performance — flatlined in April and consumer confidence began to slip in June.
The health of Canada’s economy is expected to become a little clearer Friday when June employment numbers are released. The unemployment rate hovers at 8.1 per cent after steady job gains in recent months.