Canada’s economy appears to have achieved soft landing, says IMF

1:54 pm Tuesday, July 16th, 2024

OTTAWA (Reuters) – Canada’s economy appears to have achieved a soft landing, the IMF said on Tuesday, essentially referring to a scenario where interest rates are high enough to bring inflation down to the central bank’s target without causing a recession.

Canada’s economy has been posting positive growth this year, although economists say it is lackluster, and the rate of inflation has consistently stayed in the bank’s target range of 1% to 3%, albeit hovering at the upper end.

In a separate report, the Fund said the global economy was set for modest growth over the next two years amid cooling activity in the U.S., a bottoming-out in Europe and stronger consumption and exports for China.

On Tuesday, Statistics Canada data showed that consumer prices in the country cooled more than expected to 2.7%, bolstering to an almost certainty of a second rate cut by the Bank of Canada next week.

“Inflation has come down almost to target, while a recession has been avoided, with GDP growth cushioned by surging immigration even as per capita income has shrunk,” the IMF said in its Article IV report.

The Article IV report is prepared after the IMF holds annual bilateral discussions with member countries and later publishes its observations on conclusion of the discussions.

The Fund revised Canada’s GDP growth up by 0.1% in 2024 and 2025 to 1.3% and 2.4%, respectively, compared with its April forecast. Inflation would settle around 2.5% this year and would ease down to 2% by next year, it estimated.

Last month, the BoC trimmed its interest rate for the first time in four years by 25 basis points to 4.75%, becoming the first central bank among G7 countries to cut borrowing costs. The rates were at a more than two-decade high before the cut.

“Further rate cuts should continue to be carefully calibrated and data dependent,” it said, similar to the commentary of the BoC Governor Tiff Macklem.

Financial markets are betting that there is an almost certainty of a rate cut at BoC’s July 24 monetary policy announcement with 92% of bets favoring a cut.

(Reporting by Promit Mukherjee and Ismail Shakil; Editing by Nick Zieminski)