Canada's economy still faces a tough 2009 even though the country is in better financial shape than many other industrialized countries, the International Monetary Fund said in a report released Wednesday.

The IMF said that Canada's banking system is in good shape and Ottawa's handling of the deficit and the Bank of Canada's grip on monetary policy earn top stars.

Despite those positive factors, however, Canada will not escape the downturn experienced by most of its trading partners and, as a result, will see its economy deteriorate in 2009, the international organization said.

"Reflecting these factors, economic activity will likely decline further in the near term, before picking up," said IMF mission chief Charles Kramer in a statement.

"Further export declines and soft commodity prices are likely to weigh on employment and income, while uncertainties about near-term prospects may restrain investment," he said.

Kramer and his colleagues visited Canada between Feb. 23 and March 9 to assess the country's economy and the government's ability to deal with the ongoing recession affecting most industrialized countries.

Short-term pain

In its report, the IMF did not define "near term." But, the international organization is predicting Canada's GDP will shrink by 1.2 per cent in 2009, a better showing than that forecast for the United States (-1.6 per cent) and the United Kingdom (-2.8 per cent).

Still, observers believe the IMF will chop Canada's growth target even further.

The federal government's stimulus spending plan will boost economic activity, says the International Monetary Fund. (CBC)

The organization also differed in its outlook with the controversial forecast of Bank of Canada Governor Mark Carney, who said that Canada's GDP will grow by almost four per cent in 2010.

Similar to Canada's central bank, the IMF said Canada will endure most of its economic body blows in the current 12 months.

But, for now, the international organization is predicting that Canada's economy will only grow by 1.6 per cent in 2010, less than one-half of the Bank of Canada's forecast.

The IMF said Ottawa is striking the correct tone by slashing interest rates by 400 basis points since December 2007 and passing a fiscal stimulus package in the range of two per cent of GDP.

"With sizeable infrastructure spending and permanent tax cuts, it is weighted toward items that are most effective in stimulating demand," the IMF said.