OTTAWA – The International Monetary Fund has slashed its outlook for Canadian economic growth this year while also reducing expectations for the global economy.
The fund is calling for growth in Canada of 1.5 per cent this year, down from an April growth forecast of 2.2 per cent, the biggest downgrade in its world economic outlook update issued Thursday.
But growth in Canada in 2016 now is expected to clock in at 2.1 per cent, up from an earlier forecast of 2.0 per cent.
The reduction for Canada came as the IMF cut its outlook for growth in the global economy in 2015 to 3.3 per cent from the 3.5 per cent it predicted in April, citing weakness in the U.S.
“The shortfall reflected to an important extent an unexpected output contraction in the United States, with attendant spillovers to Canada and Mexico,” the IMF said in its report.
“One-off factors, notably harsh winter weather and port closures, as well as a strong downsizing of capital expenditure in the oil sector contributed to weakening U.S. activity.”
The cut by the IMF follows suggestions by several economists that Canada may have slipped into a recession in the first half of the year and speculation that the Bank of Canada may cut interest rates.
The Canadian economy contracted in each of the first four months of the year as low oil prices and weak U.S. economic growth took their toll.
The central bank is widely expected to trim its outlook for the economy when it releases its monetary policy report next week, but what it will do with interest rates is less clear.
In its April report, the central bank predicted growth of 1.9 per cent for this year and 2.5 per cent in 2016.
TD Bank suggested earlier this week that it was likely that the Canadian economy slipped into recession in the second quarter and predicted the Bank of Canada would cut its key rate next week.
On Thursday, TD Bank also cut its expectations for individual provinces, but noted sharp regional differences.
“Both the recent challenges in the global oil market and the early year woes of the U.S. economy have conspired against provincial economies so far this year,” TD said in its report.
“Fortunately for a number of oil consuming regions, such as Ontario and British Columbia, relatively solid domestic momentum has helped to mitigate the negative impact from difficult external conditions.”
TD expects the Alberta economy to contract by 0.9 per cent this year, while Newfoundland and Labrador is predicted to drop 0.9 per cent. Saskatchewan should eke out a gain of 0.2 per cent, it said.
British Columbia is expected lead growth this year with a gain of 2.2 per cent, followed by Ontario at 2.1 per cent.