Downbeat Economic Forecasts for Canada and the World

IMF Forecasts weatk growth in Canada and globally

You may have seen the recent downbeat economic news as the IMG downgrades Canada’s forecast for economic performance in 2016 – 2017. Actually, this isn’t as bad as it sounds initially.

The International Monetary Fund still predicts that Canadian GDP will grow (by 1.5 per cent in 2016 and 1.9 per cent next year), but not as much as expected in earlier forecasts. This is an improvement on the 1.2 per cent showing of 2015 and is consistent with predictions made by the Bank of Canada. This is something of a dampener on the more upbeat mood of the past few months where GDP and employment numbers have been good. However, as always in economics is it important to take account of the long term underlying factors rather than temporary blips and bounces.

In this case the factors affecting Canada appear to be international trade barriers, the low cost of oil and lack of demand for other commodities due to the global slowdown. There are plenty of countries in the same boat. The IMF forecasts for the USA were dark, as indeed they were for the global economy overall (an exception being for China where growth is predicted at a healthy 6.5 percent for this year and 6.2 per cent for 2017). The body warns that international economic growth is too slow, and this could risk social and political upheaval in some countries.


Current events in economics

Current events in economics

If we take into consideration current events in economics, the most important is the fall in oil prices. What does it mean for the Canadian economy? Here are a few things happening.

(1) Weakening of the Canadian Dollar – Since the fall in oil prices, the Canadian Dollar has lost most against the USD. This is not good for the economy as the oil prices may take up to five years to reach the $100 level.

(2) Slower economic growth – With the Canadian dollar going down the economy growth is also going to suffer. With Canada involved in oil sands project, it is losing millions of dollars daily. Not good at all for Canada.

(3) Cut in the service industry – Just like other developed nations Canada’s economy is based on service industry. However current events in economics in Canada has led to the consumer having less disposable income. This means that the income will be spent more on necessities. This is bad news for Canada. Finance minister Bill Morneau is facing the crisis of his political career of ensuring the coming budget helps stabilize the economy.