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OTTAWA -- Canada’s economy is set to outperform nearly all industrialized countries this year and next, the International Monetary Fund said Wednesday, leading analysts to declare the country does not need additional stimuli as advocated by certain world leaders at this week’s Group of Eight summit.


The latest IMF outlook suggested the world economy is “beginning to pull out” of the deepest recession since the Second World War. The global economy will shrink 1.4% this year, it said, but growth of 2.5% is now expected in 2010, an improvement of just over a half-percentage point from its previous forecast in April.


As for Canada, the IMF said the economy would contract the least among industrialized nations this year, with a drop of 2.3%, compared with the 3.8% shortfall expected among all advanced economies. In 2010, the Canadian economy is set to post growth of 1.6%, or second-best among advanced nations after Japan’s expected 1.7% gain. In contrast, the U.S. economy is seen recording meagre growth of 0.8%, or half the Canadian output.


China and India, which crave Canadian-produced raw goods, are expected to be global growth leaders in 2010, with gains of 8.5% and 6.5%, respectively.


“Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating,” the IMF said, adding, however, that the recovery would likely be sluggish.


The release of the IMF report coincided with the beginning of a meeting of G8 leaders in central Italy, with much of the focus expected to be on measures to put the global economy back on track. U.S. President Barack Obama and Britain’s Prime Minister, Gordon Brown, were among those advocating more fiscal stimuli be injected in the global economy, on the concern that the US$2-trillion spent worldwide may not be enough to ignite domestic demand.


On the other side is Stephen Harper, the Prime Minister, who is arguing his G8 peers should follow Canada’s lead and make sure that already-announced spending initiatives are fully executed.


“Before there’s talk of additional stimulus, I would urge all leaders to focus first on making sure the stimulus that’s been announced actually gets delivered,” he told reporters. “That’s been our focus in Canada and I would encourage the same priority elsewhere.”


The federal government has in place a two-year, $46-billion plan aimed at creating jobs and reviving tepid demand in an effort to mitigate the fallout from the global financial crisis. (The stimulus could reach nearly $80-billion when provincial and territorial contributions are taken into account.) Mr. Harper has said 80% of the federal stimulus funds have been committed.


The fiscal stimuli is on top of the Bank of Canada’s move to chop 425 basis points from its key lending rate since December 2007, from 4.5% to its current 0.25% level.


Economists say the coming stimulus from Ottawa and the provinces should show up more forcefully in the economic data in the months ahead. Given the IMF’s expectations, they believe there’s no need to add to the stimulus pipeline.


“Staying the course is probably the prudent path right now,” said Craig Wright, chief economist at Royal Bank of Canada. “From the time you announce fiscal stimulus to the time you actually see it bearing fruit, there is a great lag involved. It is coming and it will be coming alongside of the lagged impact from the low interest-rate environment.”


Stéfane Marion, chief economist at National Bank Financial, said there are distinct differences between Canada and other G8 countries – most notably, Canada did not suffer the same type of collapse in real estate holdings, and its financial system is far better shape than in the United States and Europe.


“I am not sure there is much more than we can do,” he said, adding people are “underestimating” how long it takes for the impact of interest-rate cuts and government spending to wind its way into the real economy.


Mr. Marion added that several key indicators, such as surveys of purchasing managers, point to increased levels of production in the economy for the coming months.


The IMF said countries should maintain “supportive” monetary fiscal policy through 2010 until the recovery is in full swing. However, it indicated plans “should be made” to reduce the budget deficits incurred by combating the recession.


Meanwhile, the IMF and Ottawa formally signed a deal Wednesday in which Canada would make US$10-billion available to the global body for emergency purposes. If needed, the IMF could draw up to US$770-million a week to ensure emerging economies and developing countries have the access to capital during the economic crisis. The deal was first announced at last April’s meeting of the Group of 20 nations.


(Courtesy of the National Post)

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