The International Monetary Fund (IMF) logo is seen in Washington.Yuri Gripas/Reuters
The International Monetary Fund says the risk of a “hard landing” for the global economy has risen sharply as a result of stubborn inflation and recent strain in the U.S. and European banking sectors.
The IMF’s biannual World Economic Outlook, published Tuesday, left the fund’s global growth forecast largely unchanged. However, it warned that risks to the outlook are now “heavily skewed” to the downside.
“On the surface, the global economy appears poised for a gradual recovery from the powerful blows of the pandemic and of Russia’s unprovoked war on Ukraine,” Pierre-Olivier Gourinchas, the IMF’s economic counsellor and head of research, wrote in the introduction to the report.
“Below the surface, however, turbulence is building, and the situation is quite fragile, as the recent bout of banking instability reminded us.”
The publication launches the spring meetings of the IMF and the World Bank in Washington. Finance ministers and central bankers, including Chrystia Freeland and Bank of Canada Governor Tiff Macklem, are also attending a meeting of the G20 in Washington this week.
The report is shot through with a sense of uncertainty. Many large economies, including the United States, China and the euro zone, have performed better than expected through late 2022 and early 2023 – belying the IMF’s gloomiest recession forecasts from last year.
At the same time, inflation is proving more stubborn than expected in many countries. And the recent turmoil at Silicon Valley Bank and Credit Suisse has highlighted the risk of a financial crisis, making things harder for central bankers who now have to balance inflation fighting against financial stability concerns.
“The sharp policy tightening of the past 12 months is starting to have serious side effects for the financial sector,” Mr. Gourinchas wrote, referring to the rapid pace of interest rate hikes by many central banks around the world.
Prompt action by central bankers and regulators appears to have contained the dysfunction that emerged in the British bond market last fall and stopped the spread of financial contagion during the recent tumult at U.S. and Swiss banks, Mr. Gourinchas wrote. But the global financial system could be tested again, he said.
“We are therefore entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.”
The IMF’s baseline scenario is for the world economy to grow 2.8 per cent this year, down from 3.4 per cent in 2022. It’s projected to then grow 3 per cent in 2024. That’s a small upgrade to the fund’s October World Economic Outlook, but a slight downgrade from a more hopeful estimate published in January. Advanced economies, including Canada, are expected to grow at a slower pace.
The report presents a “plausible alternative scenario,” where the stress in the banking sector leads to a more significant pullback in lending, as banks look to cut their exposure to risk. In this situation, global GDP would grow by only 2.5 per cent this year.
The IMF also sees a roughly 25-per-cent chance that global growth could fall below 2 per cent, a level often taken to imply a global recession. That is double the normal probability.
Canada is expected to perform relatively well compared with peers over the next two years. The IMF sees the Canadian economy growing 1.5 per cent in both 2023 and 2024, which would make it the second-fastest-growing G7 economy this year and the fastest growing next year. In addition, inflation in Canada is expected to fall faster than in many peer countries.
The Bank of Canada will publish its own updated inflation and economic growth forecast on Wednesday alongside its interest rate announcement.
Looking further out, the IMF expects medium-term global growth to be the weakest in decades, settling at around 3 per cent in five years.
“Some of this decline reflects the growth slowdown of previously rapidly growing economies such as China and Korea. This is predictable: Growth slows down as countries converge,” Mr. Gourinchas wrote.
“But some of the more recent slowdown may also reflect more ominous forces: the scarring impact of the pandemic; a slower pace of structural reforms, as well as the rising threat of geoeconomic fragmentation leading to more trade tensions.”
A separate IMF report on financial stability, also published Tuesday, said the risk of a major financial crisis is lower today than it was in 2008. Banks have better capital and liquidity buffers, and central banks have more experience responding to financial shocks.
Still, tight monetary policy could trigger bouts of financial instability, according to Tobias Adrian, the IMF’s financial counsellor.
“Activities in riskier segments of capital markets such as leveraged loans and private credit markets have slowed. Concerns have also been growing about conditions in commercial real estate markets, which are heavily dependent on smaller banks,” Mr. Adrian wrote in an introduction to the report.
“While banking stocks in advanced economies have undergone significant repricing, broad equity indices remain very stretched in many countries, having appreciated markedly since the beginning of the year. A more extensive loss of investor confidence or a spreading of the banking sector strains into nonbanks could result in a broader sell-off in global equities.”
The International Monetary Fund on Tuesday trimmed its 2023 global growth outlook slightly as higher interest rates cool activity but warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
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