Canada will beat out average G7 economic growth this year and next, the International Monetary Fund said Tuesday.

The global economy is bouncing back from negative territory quicker than expected and will grow 3.9% this year, the IMF said in its World Economic Outlook.

Vigorous growth in Asia combined with surprising strength in U.S. consumer demand led the IMF to revise its October growth projection of 3.1%.

But, the IMF said, the recovery is proceeding at different speeds in different countries and advanced economies remain “sluggish.”

Canada is considered part of that slower pack with estimated growth coming in below the world average at 2.6% for the year. Still, however sluggish, economic growth in this country will outperform other advanced economies, such as the U.S., U.K., Euro area and Japan, which as a group will see average growth of 2.1%.

The pace of recovery Canada should pick up steam in 2011 at 3.6%.

The problem for Canada and other industrialized economies is a heavy reliance on government stimulus measures.

“For the moment, the recovery is very much based on policy decisions and policy actions,” said IMF Chief Economist Olivier Blanchard in an IMF video interview.

“The question is when does private demand come and take over.”

Financial markets have rebounded since the lows of last March and risk appetite has returned but that could take a turn for the worse as policy makers seek to unwind unprecedented stimulus measures, the IMF said.

In the past, the IMF has warned of a double-dip recession if anti-crisis measures are withdrawn too soon and without a thorough exit strategy. In Canada, the Conservative government plans to turn the taps off on the $62-billion federal Economic Action Plan by year’s end.

High unemployment rates, rising public debt and weak household balance sheets in some countries also present further roadblocks to recovery, the IMF said.

In Canada all three of those barriers to growth exist with unemployment hovering around 8.5% and the average Canadian carrying a record household debt to income ratio of 140%.

Bank reform also needs to be tackled head-on in many countries to address issues of impaired assets, restructuring and potential market bubbles, the IMF said.

“Policymakers will also need to move boldly to reform the financial sector with the objectives of reducing the risks of future instability and rethinking how the potential fallout of financial crises would be borne in the future, while at the same time making the sector more effective and resilient.

Take our FREE Online Assessment Today!


Socialize with Abrams & Krochak