IMF says global economy is ‘fragile’ and requires support from fiscal policies

TORONTO – The International Monetary Fund says governments with the room to manoeuvre should invest in public infrastructure to stimulate growth while having a clear plan to keep debt at sustainable levels.

“The global economy remains fragile at this time,” the IMF said in an annual fiscal monitor report released Wednesday.

“In this challenging environment, a comprehensive policy package is urgently needed to boost growth and reduce vulnerabilities.”

The IMF says Canada was one of only a few countries planning to raise its public investment ratio this year, as it did in its federal budget. But the IMF didn’t comment on the size of Canada’s projected deficits.

The IMF estimates that Canada’s overall government deficit in 2016 will be equivalent to 2.4 per cent of gross domestic product — up from 1.3 per cent in last year’s IMF estimate for 2016, when the Conservative government was pursing a balanced budget strategy, despite a major drop in oil prices.

The Liberals, who said during last year’s election campaign that deficits of less than $10 billion a year would be necessary for three years, are now projecting a $29.4-billion shortfall in the current 2016-17 financial year and five consecutive annual deficits totalling more than $110 billion.

Some of the budget’s critics have said it doesn’t contain a clear plan for balancing the books within four years in the 2019-20 financial year — another Liberal campaign promise.

The IMF released its annual fiscal monitor Wednesday at its spring meetings in Washington, D.C., shortly after the Bank of Canada upgraded its economic projection for this year, citing the positive effect of the federal government’s spending plan.

The Bank of Canada’s new estimate for 2016 economic growth is 1.7 per cent, up from its previous estimate of 1.4 per cent. That contrasted with the IMF’s decision this week to lower its growth estimate for Canada to 1.5 per cent from 1.7 per cent.

The IMF is also less optimistic about Canada’s real GDP growth in 2017, which it estimates will be 1.9 per cent compared with the Bank of Canada’s estimate of 2.3 per cent.

The Finance Department has estimated that the budget’s measures — including infrastructure investments and tax relief for middle- and low-income households — will add 0.5 per cent to this year’s economic growth and one per cent in 2017-18.

The budget uses a private-sector estimate of 1.4 per cent growth in GDP in 2016 and 2.2 per cent in 2017.