Erin Nicole Davis
In today’s World Economic Outlook, the International Monetary Fund (IMF) cut its growth forecast for the global economy, due to Russia’s invasion of Ukraine.
While the global outlook isn’t exactly uplifting news, things aren’t that low for Canada. According to the IMF, Canada will see only a modest revision to its current GDP outlook.
Changing tone from its January forecast, the IMF now expects the global economy to grow by 3.6% in 2022 and 2023, marking declines of 0.8% and 0.2% since the start of the year. In January, the IMF said the global economy was in recovery mode from the pandemic and forecast growth of 4.4%. This is a notable drop from 6.1% last year. The IMF also said it expects the global economy to grow further by 3.6% in 2023, slightly lower than the 3.8% projected at the start of the year.
Besides the ongoing war in Ukraine, the IMF cited COVID-inspired lockdowns in China and recent monetary tightening by central banks around the world as reasons for the revisions.
There’s some uplifting news (well, depending on how you look at it): Canada saw the smallest downward revision to its growth forecast of any advanced economy, dropping just -0.2% at 3.9% compared to the 4.1% forecast in January and 4.6% in 2021.
This compares to -0.3% for the US, -1.0 for the UK and -1.1% for the Eurozone. The IMF maintained its projection of 2.8% growth in Canada for 2023. The organization highlighted how limited Canada’s economic ties with Russia are; He said the revised outlook reflects recent interest rate hikes and weaker demand expected in the United States that outweigh improving business conditions.
However, while the direct impact of the Ukraine-Russia conflict appears limited for Canada, there are growing fears that recessionary pressures are building up here. According to Finder’s Band of Canada’s Overnight Rates Survey, 59% of economists expect a recession to occur in Canada during 2023 or the first half of 2024. The prediction comes at a time when grocery and gas prices across the country are causing Canadians to reconsider their shopping habits in the wake of high inflation, which the central bank is trying to address with rising interest rates of 0.5% last week. According to the Finder survey, most experts are predicting four more interest rate hikes this year.
“Given recent hawkish remarks from Bank of Canada officials, we now expect a 50 basis point hike in April, followed by two 25 basis point hikes in June and July, [lifting] the policy rate to 1.50% by July,” said Tony Stillo, director of Canadian economics for Oxford Economics. “We continue to expect the Bank to take a break from its July rate hike to reassess the Canadian economy, particularly with high household debt and overvalued house prices, before resuming higher yields. rate in 2023.”
James Knightley, chief international economist for ING, agrees that the Bank of Canada has become more aggressive in its rate hike policy, but also explains Canada’s unique position.
“The Canadian economy has recouped all of the output lost during the pandemic as employment is at all-time highs and inflation is at the fastest rate since 1991,” Knightley said. “Central banks around the world are acknowledging the threat of more prolonged inflationary pressures, with rate hike expectations rising sharply. The Canadian economy, given its relatively large commodity weighting, appears to be one of the best performers growth with an increasing likelihood of a more aggressive policy response from the Bank of Canada.
The IMF warned that supply shortages could persist and acknowledged that runaway inflation could lead to more aggressive tightening from central banks around the world. It predicts a 5.7% rise in consumer prices in the world’s advanced economies this year, the highest since 1984.
While there may be a silver lining for Canada when it comes to today’s outlook, the reality remains that things are far from perfect on the economic front.
Erin Nicole Davis
Erin Nicole Davis is a Toronto born and raised writer with a passion for the city, its urban affairs and its culture.
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