IMF Sees Canadian Economic Growth Take Off in 2013

Canada's economic growth expected to pick up and accelerate into 2015.

The International Monetary Fund (IMF) has reported favourably upon Canada’s potential for economic growth, expected to pick up later in 2013 and accelerate from about 1.8 to 2.5 percent by 2014-15. Citing Canadian business investment and net exports as the key beneficiaries of a strengthening US economy, the consultative report compliments the progress made by government to return to balanced budgets in the medium term.

"The Report’s conclusions lend particular credence to our ongoing efforts to ensure a strong, competitive and efficient financial sector for Canadians, backstopped by sound federal finances and the return to balanced budgets before the end of this Parliament," Minister of Finance Jim Flaherty responded. The report is good timing in advance of the federal budget date announcement, expected soon.

Notably, as households continue to tackle debt, private consumption and residential investment is expected to contribute less to growth than in the recent past. In its annual report, which is released at the discretion of the subject country, the IMF also identified, among other things, solid lending policies leading to a low fraction of loans considered at risk of default, as a positive for Canada. 

The coast isn’t all clear though in the interim, however, and while Canadian financial markets have benefited from improved global financial conditions, a near term global economic storm continues to threaten on three fronts, according to the IFM: continued uncertainty in the American fiscal policies, turbulence in Europe, and a decline in commodity prices driven by slowing economic growth in the emerging markets.

How does this affect Canadian advisors and their clients? Individuals are more vulnerable to external shocks when there is high household debt and elevated housing prices. The IMF considers the housing sector to be an important source of vulnerability, particularly if the debt-to-income ratio continues to rise. Debt management counseling is therefore an important part of every visit with clients over the RRSP and tax season.