IMF sees tougher times for Canada

Wed Mar 11, 2009 11:49am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada is in for even tougher economic times in the near future because of its reliance on international trade, particularly with the United States, the International Monetary Fund said on Wednesday.

Canada's banks, while displaying "remarkable stability" during the global financial crisis, may also come under increased pressure and face tighter credit conditions, the Washington-based lender said.

The world is buying fewer Canadian goods and commodity prices remain soft, hurting jobs and income. Businesses may further cut back investments, while prices remain low or fall.

"Downside risks predominate, including negative spillovers if the global environment worsens more than expected," the IMF said in the concluding statement of the report on its two-week mission to Canada in late February and early March.

Canada, which sells three-quarters of its exports to the United States, posted its first trade deficit in 33 years in December due to the ailing U.S. economy.

The Bank of Canada has predicted the economy will shrink 4.8 percent in the first quarter and expects it to start growing again in the third quarter.

Despite the bleak short-term outlook, the IMF said Canada is more resilient than most other major countries as it faces the crisis rocking the global economy because of its overall sound fiscal and monetary management, the stimulus plan it announced in January and an unusually robust banking sector.

The IMF threw its support behind the Conservative government's plan to spend C$40 billion ($31.2 billion) over the next two years on infrastructure, tax breaks and a host of other measures to jolt the economy back to life.   Continued...

<p>Prime Minister Stephen Harper speaks during Question Period in the House of Commons on Parliament Hill in Ottawa March 3, 2009. REUTERS/Chris Wattie</p>