WASHINGTON – The International Monetary Fund boosted its expectations for Canadian economic growth this year as it warned the world is facing new threats from surging oil prices, Mideast turmoil, higher inflation in China and Europe’s debt woes.
In a new economic forecast Monday, the organization raised its projection for Canadian growth of 2.8 per cent for 2011, up from an earlier forecast for 2.3 per cent.
The Canadian economy grew 3.1 per cent in 2010.
“Economic developments in Canada last year mirrored those in the United States, with the pace of economic activity moderating in midyear,” the report said.
“The deceleration reflected not only the drag on Canadian exports from weak U.S. activity and strong import growth from investment spending amid an appreciating currency, but also a cooling of some domestic activity.”
The IMF also lowered its expectations for Canada for 2012 to 2.6 per cent compared with 2.7 per cent in an earlier forecast. The report suggested the risks in Canada for 2011 are tilted to the downside.
“The main domestic risk being deterioration of housing markets and household balance sheets,” the IMF said.
“Key external risks are lower-than-expected activity in the United States and renewed sovereign strains in Europe.”
The IMF said the global economy should grow 4.4 per cent this year. That compares with global growth of five per cent last year. The IMF projects industrial countries will grow 2.4 per cent while developing countries, a group that includes China, will grow more than twice as fast at 6.5 per cent.
“The world economic recovery is gaining strength, but it is unbalanced,” Olivier Blanchard, the IMF’s chief economist, told reporters.
He said it would be critical for countries running large government deficits such as the United States to make progress in getting those deficits under control. At the same time, countries with large trade surpluses, such as China, will need to do more to boost domestic demand and not rely so heavily on exports to generate economic growth.
The IMF’s new growth forecast was prepared for spring meetings of the 185-nation IMF and its sister lending agency, the World Bank.
Before those discussions Saturday, finance ministers and central bank presidents of the Group of 20 major industrial and developing nations will hold closed-door talks on Friday.
The finance officials will try to assess how big a threat the rise in energy and food prices will be and also what they can do collectively in response to the political turmoil in the Middle East and North Africa.
The United States is expected to keep pressing China to move more quickly to allow its currency to rise in value against the dollar as a way of making U.S. goods more competitive in China.
China, the largest foreign holder of U.S. government debt, will be seeking assurances that Washington is moving to put in place a credible plan to deal with soaring federal budget deficits.
At their last meeting in Paris in February, the G20 officials struck a watered-down deal on a group of technical indicators to track global imbalances. But the G20 left the tricky question of what to do if the balances become dangerous for later discussions.
The IMF, in its new “World Economic Outlook,” left unchanged its January projection that the global economy will grow 4.4 per cent this year and 4.5 per cent in 2012.
In 2009, the global economy shrank by 0.5 per cent, its worst downturn since the Second World War, with growth rebounding in 2010 to 5 per cent.
The 2.4 per cent growth forecast for the advanced economies was down 0.1 percentage point from January. The IMF expects these countries to grow 2.6 per cent in 2012.
“New downside risks are building on account of commodity prices, notably oil, and relatedly, geopolitical uncertainty as well as overheating and booming asset markets in emerging market economies,” the IMF said.
Growth in the United States was forecast to be 2.8 per cent, down 0.2 percentage point from January, reflecting primarily the drag from higher oil prices. The IMF’s forecast is in line with private economists.
Japan, which was hit by a devastating earthquake and tsunami on March 11, was forecast to grow 1.4 per cent this year, down 0.2 percentage point from the January forecast. The expectation is that the world’s third largest economy will be slowed at first by the natural disasters but then receive a boost from the reconstruction efforts.
China, now the world’s second largest economy, was projected to grow 9.6 per cent this year, a forecast that was unchanged from January. Beijing is raising interest rates to deal with rising inflation risks.
All emerging market economies, a group that includes China, India and Brazil, are expected to grow 6.5 per cent this year and next year.
Developing countries are doing better because they emerged from the recession in much better shape than many industrial countries.
“Economies that are running behind the global recovery typically suffered large financial shocks during the crisis, often related to housing booms and high external indebtedness,” the IMF said.
Economic growth in the 17 countries that use the euro including Germany, France and Italy was projected to be 1.6 per cent this year and 1.8 per cent next year, an anemic recovery that reflects continued worries that debt problems in Greece, Ireland and Portugal will spread to other countries.