IMF slashes Canada’s economic outlook as oil slump drags on

A major contributor to Canada's economic slowdown is a sharp reduction in spending in the oil sector. Credit/Getty Images

OTTAWA – The International Monetary Fund cut its growth outlook for the Canadian economy on Tuesday to just 1.0 per cent for the year, due to the drop in oil prices and reduced investment in the energy sector.

The forecast is down from the IMF’s expectation in July for Canadian growth of 1.5 per cent. The organization also lowered its Canadian outlook for 2016 to 1.7 per cent from 2.1 per cent.

The IMF also said the world economy will grow only 3.1 per cent this year, the lowest since 2009, but increased its estimate for the United States to 2.6 per cent this year, up from a July forecast of 2.5 per cent.

A major contributor to Canada’s slowdown, it said, was lower capital spending in the oil sector.

“In commodity exporters, lower commodity prices weigh on the outlook through reduced disposable income and a decline in resource-related investment,” the IMF said.

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“The latter mechanism has been particularly sharply felt in Canada, where growth is now projected to be about one per cent in 2015, 1.2 percentage points lower than forecast in April.”

The downgrade by the IMF came as Statistics Canada reported the country’s trade deficit with the world increased to $2.5 billion in August as exports posted their biggest drop since 2012 due to a sharp drop in oil prices.

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Economists had expected a trade deficit of $1.2 billion for the month, according to Thomson Reuters.

Statistics Canada also updated its reading for July to show a deficit of $817 million compared with its initial reading of a deficit of $593 million.

Canada’s exports in August fell 3.6 per cent from the previous month to $44 billion, while imports edged up 0.2 per cent to $46.5 billion.

Exports in the energy sector fell 14.7 per cent to $6.3 billion, due to a 20.9 per cent drop in crude oil and crude bitumen. For the group as a whole, prices fell 16.4 per cent while volumes increased 2.0 per cent.

Consumer goods exports dropped 8.0 per cent to $5.9 billion on lower volumes, while metals and non-metallic mineral products fell 9.7% to $4.5 billion.

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However, exports of motor vehicles and parts rose 3.1 per cent to $7.8 billion due to a 4.5 per cent increase in exports of passenger cars and light trucks.

On the other side of the trade equation, imports of consumer goods increased 2.6 per cent to $10.0 billion.

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