With economy weak and at risk, IMF tells Canada to keep supporting growth

With global finance ministers gathering in Washington this week, the International Monetary Fund is advising Canadian policy-makers against pulling too hard on the reins of austerity while the economy remains weak and vulnerable to shocks.

OTTAWA — With global finance ministers gathering in Washington this week, the International Monetary Fund is advising Canadian policy-makers against pulling too hard on the reins of austerity while the economy remains weak and vulnerable to shocks.

The IMF said Tuesday that Canada’s economy will likely slow to about 1.5 per cent this year, down 0.3 points from its earlier expectation and also from 2012 growth, before picking up to 2.4 per cent in 2014.

As well, the Washington-based financial organization reduced its expectation for overall world growth by 0.2 points to 3.3 per cent for this year, following the rough ride in 2012.

In a conference call with reporters, a senior Canadian government official said measures to give a kick-start to global output would be the main topic of discussions during the IMF meetings on Friday and Saturday, which will be attended by Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney.

The official, who asked not to be identified, said Flaherty will also be holding his first bilateral with newly-named Treasury Secretary Jack Lew and will almost certainly bring up the controversial Keystone XL oil pipeline that Canada is eager to build but has yet to receive a green light for in Washington.

Another key topic of discussion, he said, was currency manipulation, but added that the problem appears to be less acute now than last January when finance ministers agreed to play by the rules.

The U.S. has hinted of concerns over aggressive monetary policy loosening that has succeeded in devaluing the yen, thereby giving Japanese exports an advance in world markets, but the official said Canada supports efforts to kick-start the Japanese economy, the world’s third largest.

In the new outlook, the IMF said the Canadian economy is facing both external and internal risks, including a cooling housing market and record-high household debt.

“The main challenge for Canada’s policy-makers is to support growth in the short term while reducing the vulnerabilities that may arise from external shocks and domestic imbalances,” the body advises.

“Although fiscal consolidation is needed to rebuild fiscal space against future shocks, there is room to allow automatic stabilizers to operate fully if growth were to weaken further.”

The statement appears to walk the line between backing Finance Minister Jim Flaherty’s latest stand-pat budget which did not add significantly to already announced austerity measures, while also stressing that if conditions deteriorate, Ottawa should loosen economic stabilizers such as unemployment insurance and other support systems to promote growth.

The report did not mention Flaherty’s self-imposed deadline of balancing the budget by 2015, when Canada will have its next federal general election.

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