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Summary
- The International Monetary Fund’s (IMF) annual report said that the recovery of the Canadian economy is “inexorably linked” with how the COVID-19 evolves.
- The IMF also suggested that introducing a “fiscal anchor” would help boost the credibility of the country’s fiscal framework.
- It also warned that in case of a fresh wave of COVID-19 infections, Canada’s economic recovery could hit a bump.
The International Monetary Fund (IMF) has released a fresh report pointing that the recovery of the Canadian economy is “inexorably linked” with how the COVID-19 pandemic evolves.
The IMF also suggested that considering the possible need for continued support, introducing a “fiscal anchor” would help boost the credibility of the country’s fiscal framework.
IMF Latest Report on Canadian Economy
The annual report, published on Thursday, March 18, said that Canada’s real gross domestic product (GDP) is likely to rise by 4.4 per cent this year if COVID-19 is brought under control. In the pandemic-riddled 2020, the real GDP is estimated to have contracted by 5.4 per cent.
©Kalkine Group 2021
Factors like increased oil prices, pent-up domestic demand and the Democrat government’s US$ 1.9 trillion economic stimulus package in the United States is likely to have an impact on Canada’s growth.
However, in case of a fresh wave of COVID-19 infections, Canada’s economic recovery could hit a bump, said IMF.
©Kalkine Group 2020
The IMF’s executive board noted that Canada instilled “strong policy buffers” and restrictions last year to help mitigate the first two waves of the novel coronavirus. It also pointed that the government’s direct fiscal support amid the pandemic helped add up to 15 per cent of the GDP.
On the other hand, Canada’s net debt, which expanded to 48 per cent of the GDP in 2020, is projected to decease only slightly to 47.4 per cent this year, according to the report.
At the same time, the organizations directors’ noted that the Canadian government’s decision to unwind its relief policies could use “greater clarity” in terms of aspects that could lead to such withdrawals.
While welcoming the Bank of Canada’s approach regarding the maintenance and withdrawal of policy support, the Fund stressed that “clear and credible communication” would be vital in managing expectations.
Cautioning Canadian policymakers, the IMF added the process of removing relief policies should consider the short-term risks it could pose at economic growth and stability against future financial vulnerabilities. The body also warned about the “persistent” leverage buildup and soaring prices in Canada’s housing market.
