IMF warns Canada

Canada may have breezed through the global economic slowdown, but the country cannot rest on its laurels, as foreign problems threaten trade, according to a review by the International Monetary Fund.

The IMF predicts medium term growth of about 2% for both 2011 and 2012. The biggest threats to that performance will be weaker demand from our trading partners, a strong dollar and fiscal retrenchment, the report says.

To encourage continued growth, the IMF recommended the country address “long-term fiscal concerns”, tackle household debt levels, and push ahead with reforms for financial regulation and supervision.

The IMF also suggested the Bank of Canada hold off on raising interest rates.

“In terms of monetary policy, an accommodative stance will remain appropriate for some time given stable inflation expectations, ongoing economic slack, forthcoming fiscal drag, and heightened external risks,” said Gian Maria Milesi-Ferretti, chief of the North America division of the Western Hemisphere Department.

“That said, attention needs to be paid to the consequences of a prolonged period of low interest rates, which could encourage excessive borrowing and risk-taking as well as weigh on the profitability of insurance companies and the solvency of pension funds with defined benefits.”

If external threats materialize, policymakers must be prepared to allow the deficit to rise in the event of a slowdown, and monetary policy flexibility should be the first line of defence.

On the other hand, if domestic demand falls off, the government must be willing to loosen the purse strings with temporary stimulus.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.