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The International Monetary Fund is upgrading its forecast for the Canadian economy, projecting it will now grow by 1.3 per cent this year and by 2.4 per cent in 2025, according to a report released Wednesday.
In both readings, the forecasts were increased by one-tenth of a percentage point from the IMF’s initial world economic outlook released in April.
For 2025, Canada is projected to be the fastest growing economy among the G7 and other advanced economies. The U.S. economy will rank second at 1.9 per cent and the U.K. third at 1.5 per cent growth next year.
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The projection for global growth remains the same at 3.2 per cent this year, and slightly higher for next year at 3.3 per cent, revised up from 3.2 per cent growth projected in April.
Developing and emerging market economies are projected to grow by 4.3 per cent this year and next year. China’s growth was revised up this year to five per cent compared to an initial projection of 4.6 per cent. India’s economy is set to grow by seven per cent this year. Saudi Arabia received the biggest downward revision, with the Middle Eastern country’s economy now set to grow by 1.7 per cent this year, 0.9 percentage points below the initial projection in April.
The IMF predicts the global economy is headed toward a “soft landing,” but warns risks remain for the inflation outlook, especially in advanced economies.
“The good news is that, as headline shocks receded, inflation came down without a recession,” wrote Pierre-Olivier Gourinchas, economic counsellor and the director of research at the IMF, in a blog post accompanying the release. “The bad news is that energy and food price inflation are now almost back to pre-pandemic levels in many countries, while overall inflation is not.”
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The report, entitled “World Economic Outlook Update: The Global Economy in a Sticky Spot,” said momentum has slowed in bringing down inflation this year, due to higher-than-average costs in services and persistent wage growth.
Wages are elevated thanks to higher wage negotiations at the start of the year, with short-term inflation expectations above target.
Gourinchas pointed to the elevated price of goods relative to services as a culprit, leading to increased demand for services and, in turn, “the labour needed to produce them.”
This persistent stickiness in inflation could mean central bankers in the G7 keep rates higher for longer, putting the prospect of a soft-landing scenario for the global economy at risk.
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The report also highlighted potential trade disruptions brought on by the results of elections this year as a risk. With many countries now pursuing their own industrial policies and unilateral tariffs, growth of the global economy could be weakened in the long run.
“Trade instruments have their place in the policy arsenal, but because international trade is not a zero-sum game, they should always be used sparingly, within a multilateral framework, and to correct well-identified distortions,” wrote Gourinchas. “Unfortunately, we find ourselves increasingly at a remove from these basic principles.”
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