IMF says Canada needs fiscal support to counteract low oil prices

Mon Jun 13, 2016 10:48am EDT
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WASHINGTON, June 13 (Reuters) - The International Monetary Fund said on Monday that Canada is coping well with lower oil prices and weaker growth, but needs to pursue a fiscal and monetary policy mix that supports near-term output.

In a statement following its annual policy review with Canada, the IMF cautioned the full macroeconomic and financial effects of the oil shock have yet to fully play out in Canada, which saw real gross domestic product growth halve to 1.2 percent in 2015.

The Fund said its board of directors welcomed Canada's "pro-growth" budget and noted that additional fiscal support should be considered if conditions worsen.

"Growth is expected to rebound in 2016, supported by exchange rate depreciation and accommodative monetary and fiscal policies, but uncertainty about oil prices, challenges in sustaining the global recovery, and elevated domestic vulnerabilities suggest risks to the outlook are tilted to the downside," the IMF said.

It said that a Canada's push for more growth could be focused on infrastructure improvement, but noted that vulnerabilities should be contained in the housing market, where prices are rapidly rising in Vancouver and Toronto, but falling in Alberta.

Canada in the longer run should aim to reduce its debt-to-GDP ratio and pursue structural economic reforms to diversify its future growth drivers.

"Directors noted that Canada's financial sector continues to be sound and stable. They agreed that macroprudential measures have been broadly effective in containing the growth of mortgage credit and suggested that these could be further tightened if imbalances in the housing market threaten to intensify," the IMF said. (Reporting By David Lawder; Editing by Marguerita Choy)