Canada's GDP growth downgraded by International Monetary Fund

The International Monetary Fund (IMF) now predicts a lower growth rate for Canada in 2015. Last month the Organization for Economic Cooperation and Development (OECD) also predicted lower growth rates for Canada this year.

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The IMF now projects the growth in GDP for Canada this year at only 1.5 percent. In April the IMF predicted a growth rate of 2.2 percent. The U.S. rate is now predicted to grow at a 2.5 percent rate but that is also down from 3.1 percent earlier. The EU growth rate is predicted at the same rate as Canada 1.5 percent in spite of problems with Greece. The rate is unchanged from the April prediction.

The OECD had predicted a Canadian growth rate of 2.2 percent in March but reduced this to 1.5 percent in June. The decline in oil prices, negative growth in the first quarter, and sluggish pace of new investments all contributed to the reduced growth prediction. Some are predicting that there will be a recession in Canada. While many admit there may be a technical recession, that is two consecutive quarters of negative growth, many see this as a "soft patch" with no sustained broad-based decline in economic activity. Much of the distress in the Canadian economy is focused on the energy sector. Randall Bartlett TD Bank senior economist commented: "It is likely that the Canadian economy was in recession in the first half of the year. It is commonplace to define a recession as two consecutive quarters of negative real GDP growth and output now looks to have fallen by about 1.0% in Q1 and 0.6% in Q2. The second half of the year is also likely to be weaker than previously expected, reducing annual real GDP growth to around 1.2% in 2015. This would mark the weakest pace of real GDP growth outside of a recession in over 20 years,"This view contrasts with that of Doug Porter of the BMO: "What we’re seeing right now is weakness in the energy sector… at the moment it’s not spreading much beyond that.”

The IMF claims reduced spending in the energy sector is one of the main reasons it has reduced it economic growth prediction for Canada. While the price has recovered, in the last few days prices have turned downward again. Since last summer the price of oil has seen a huge 40 percent decline. In provinces such as Alberta that are highly dependent on the energy sector, there has been considerable belt tightening and reduction in investment. The new NDP government will see declining revenues. In spite of the leftist reputation of the NDP, the new government has been attempting to develop good relations with the oil patch. Premier Rachel Notley stresses the importance for Alberta of the development of the Oil Sands.

Many economists believe that the Bank of Canada will cut interest rates further after its surprise cut in January of this year. While the IMF sees slower growth this year, it predicts an improved growth rate of 2.1 percent for 2016.

This rate will still be well below predicted global growth of 3.8 per cent for 2016. Global growth for this year is judged to be 3.3 percent. Canada is well below that, as are many developed economies.