Canada: Growth Set to Strengthen in Second Half of 2013

Economic growth expected to pick up again in second half of 2013

Concerns about U.S. fiscal policy, euro area crisis, commodity prices are main risks to outlook

Increasing labor productivity remains a priority

Economic activity in 2013 is expected to pick up during the second half of the year, thanks to the strengthening of the U.S. economy from mid-2013. But for the year as a whole the IMF expects GDP growth to be a modest 1.8 percent, which reflects weak activity at the end of 2012 carrying over to 2013.

In an interview with IMF Survey, to coincide with the publication of the IMF’s regular annual health check of the Canadian economy, Roberto Cardarelli, IMF mission chief for Canada, discusses the outlook for the country’s economy and goes over the findings of his team’s analysis. The staff team, including IMF economists Paulo Medas and Julien Reynaud, met with the Canadian authorities in Toronto and Ottawa in December 2012.

IMF Survey: What is the outlook for the Canadian economy? Is the uncertainty about the global economic environment, and in particular concerns about fiscal policy in the United States, having a big impact?

Cardarelli: Our outlook for the Canadian economy is a relatively rosy one, as we expect the pace of expansion to accelerate over the course of 2013 after the weakness experienced last year—but we project lower average growth for 2013 as a result of weak economic activity at the end of 2012 carrying over to 2013. The main reason for our optimism is that we expect export growth to strengthen, as the recovery in the U.S economy gradually steps up the pace. And we expect the more sustainable and less uncertain global recovery to unleash capital spending that firms have been postponing for a while now despite extremely favorable financing conditions.

These positive developments should more than offset the unfavorable conditions from weaker construction activity and more moderate consumption. The housing sector seems to have begun its descent toward a slower but more sustainable pace of expansion, while consumers’ reluctance to finance spending by adding to their already high debt burden is likely to continue.

So in our view, the risks surrounding this scenario continue to be predominantly on the downside. And indeed, given the very open nature of the Canadian economy, they are largely external.

Our staff report devotes quite a few pages to describing the numerous trade and financial linkages that make Canada...