The International Monetary Fund says Canada's economy is stronger than most and is well positioned to weather the global economic storm -- but warns that the financial turbulence will get worse before it gets better.
The warning came on the same day the parliamentary budget officer said the Canadian economy is worse off than published figures indicate.
The IMF sent a mission to Canada from Feb. 12 to March 9 to meet with officials and the private sector.
As a follow-up, IMF Mission Chief Charles Kramer issued a statement on Wednesday that suggested the Canadian economy will continue to worsen, saying the nation's heavy reliance on international trade leaves it vulnerable to the global recession.
"The rapid deterioration in the global environment is affecting Canada through its strong international linkages," Kramer wrote.
"Real exports and output have fallen and are likely to decline further in coming months. Weakening global demand has prompted a retreat in commodity prices, with effects particularly on the Western provinces."
He said global financial woes have spilled over into Canada, but he recognized that Canada's economy is "faring better than many abroad" and said the country is better positioned to weather the financial storm.
He cited three reasons:
- A track-record of sound macroeconomic policy management that has slashed debt and maintained price stability.
- A proactive government response to the crisis, including the Conservative stimulus package announced in January, calling it "large, timely and well targeted."
- A focus on financial stability through regulations. Kramer noted Canada's banks were well capitalized and avoided the losses that many suffered around the world.
"Reflecting these factors, economic activity will likely decline further in the near term, before picking up on the back of the policy stimulus already in train," Kramer wrote.
Tories respond
Industry minister Tony Clement told CTV's Power Play the report was a "vindication" of the government's policies.
"The definition of an expert is the guy from out of town and the IMF says we are on the right track," he said.
Finance Minister Jim Flaherty quickly responded to the report earlier Wednesday. He said the government is holding to its prediction that Canada will exit the recession first.
He pointed out that the IMF report gives Canada credit for being in better shape than most other countries.
Flaherty also used the opportunity as another chance to urge quick passage of his government's $40-billion stimulus package, which still needs to get through the Senate.
Budget officer's warning
Earlier Wednesday, Parliamentary Budget Officer Kevin Page released a new economic assessment that said last quarter's 3.4 per cent contraction in gross domestic product doesn't reflect how far the economy has fallen.
Rather, Page pointed to gross domestic income as a more accurate indicator, since it measures Canadians' purchasing power.
That scale shows a drop of 15.3 per cent in the fourth quarter of last year.
The drastic drop was due largely to the decline in corporate profits that stemmed from the crash in world commodity prices.
The U.S. only experienced a 1.5 per cent drop in the same period, the report states.
One day earlier, in what was touted as his first major speech on the recession, Prime Minister Stephen Harper said Canada is doing much better than its competitors.
He said Canada was the last industrialized nation to enter the recession, and will be the first to exit from it.
