Momentum Slowing: IMF Cuts 2019 Growth Forecasts for Canada and World

Global Economy Set for Weakest Growth in Years

The stock markets may be closing in on the longest bull market in history, but economic indicators, which are reflected in corporate earnings, suggest the momentum on Bay Street and Wall Street is grinding down. The International Monetary Fund (IMF) cautioned that the global economy is slowing, and economic issues will get worse should the trade war between the U.S. and China continue. The global economy will also suffer if Britain leaves the European Union without a deal. The IMF, an organization that oversees the international monetary systems, promotes employment, and economic development, cut its forecast for global growth, blaming trade tensions between the U.S., the world’s biggest economy, and China, the world’s second biggest economy. It also cited rising U.S. interest rates as a potential economic headwind, a “no-deal” Brexit for the U.K, and an economic slowdown in China.¹ The IMF expects 2019 global growth to come in at 3.5%, down from 3.7% in 2018. Just this past October, the IMF said it expected 2019 global economic growth to reach 3.7%. The IMF left its outlook for the U.S. economy unchanged at 2.5%. It’s a different story in China. China’s gross domestic product (GDP) grew 6.6% in 2018, its slowest pace since 1990 and down from 2017 GDP growth of 6.8%. A slowdown in China could threated global growth. The IMF downgraded its economic outlook for Canada. This year, the fund estimates 2019 growth at just 1.9%; down from the October forecast for growth of 2.0%. The IMF is less optimistic about Canada’s economic outlook in 2019 but it’s slightly more optimistic than what the Bank of Canada is expecting. The central bank said in early January that it now predicts 2019 gross domestic product (GDP) growth of just 1.7%, down from its October forecast of 2.1%.² The Bank of Canada’s dour economic outlook for 2019 is being fueled by low oil prices, rising oil inventories, and lower demand. To add some perspective on that, oil and gas added $117 billion to Canada’s GDP in 2018, six times what Ontario’s auto industry did. On top of that, consumer spending and housing investments are weaker than expected; this is a result of higher interest rates, which is cutting into household spending, and stricter lending rules, which is hurting the Canadian real estate market.

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1. “World Economic Outlook Update, January 2019”, IMF, last accessed January 21, 2019; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019.
2. “Bank of Canada maintains overnight rate target at 1 ¾ per cent”, Bank of Canada, January 9, 2019; https://www.bankofcanada.ca/2019/01/fad-press-release-2019-01-09/.

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