IMF raises outlook for Canadian economy, upgrades global economic projections

The International Monetary Fund raised its estimate for economic growth in Canada this year as it said U.S. tax cuts are expected to help boost global economic growth.

Canada's economy projected to grow 2.3% this year, up from an estimate of 2.1% in October

The International Monetary Fund says U.S. tax reform and its associated fiscal stimulus will give a temporary boost to the U.S. economy, which will have a spillover effect for Canada and Mexico. (Ryan Remiorz/Canadian Press)

The International Monetary Fund raised its estimate for economic growth in Canada this year as it said U.S. tax cuts are expected to help boost global economic growth.

The international lending agency said Monday it now projects Canada's economy will grow 2.3 per cent this year, up from an estimate of 2.1 per cent in October.

Growth for 2019 is forecast at 2.0 per cent, up from an earlier projection for 1.7 per cent.

The update for Canada came as the IMF said world output is expected to grow 3.9 per cent this year and 3.9 per cent in 2019, up two-tenths of a percentage point in both years.

The IMF said the cyclical upswing underway since mid-2016 has continued to strengthen.

"This forecast reflects the expectation that favourable global financial conditions and strong sentiment will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports," the agency said in its report.

"In addition, the U.S. tax reform and associated fiscal stimulus are expected to temporarily raise U.S. growth, with favourable demand spillovers for U.S. trading partners — especially Canada and Mexico — during this period."

The IMF cited increased investment as businesses take advantage of lower corporate tax rates as it projected U.S. growth to increase to 2.7 per cent this year, from 2.3 per cent in 2017.

The agency noted that risks to its global outlook were "broadly balanced" in the near term, but skewed to the downside in the medium term.

"In the near term, the global economy is likely to maintain its momentum absent a correction in financial markets — which have seen a sustained run-up in asset prices and very low volatility, seemingly unperturbed by policy or political uncertainty in recent months," the report said.

"Over the medium term, a potential buildup of vulnerabilities if financial conditions remain easy, the possible adoption of inward-looking policies, and non-economic factors pose notable downside risks."