Concluding Statement of the IMF’s 2009 Article IV Mission to Canada

Press Release No. 09/73
March 11, 2009

An International Monetary Fund (IMF) mission visited Canada during February 23-March 9, 2009 for discussions with officials and the private sector, as part of the IMF’s regular Article IV consultations with its member countries. IMF Mission Chief Charles Kramer issued the following statement today on the mission’s findings:

“The rapid deterioration in the global environment is affecting Canada through its strong international linkages. 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. Global financial strains have also spilled over to Canada, although its financial system is faring better than many abroad. 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.

“More generally, however, Canada is better placed than many countries to weather the global financial turbulence and worldwide recession. Its resilience can be attributed to three factors: First, a track record of sound macroeconomic policy management has left the country in prime form at the beginning of the global turmoil. This includes a fiscal framework that has more than halved net federal debt relative to GDP over 10 years, and a monetary framework that has maintained price stability. In addition, the floating exchange rate has served as a shock absorber, particularly in the face of commodity price fluctuations.

“Second, the authorities responded proactively to the crisis. The IMF supports the strong fiscal package announced in January, which was large, timely, and well targeted, and it will buoy demand during the downturn. The focus now is appropriately on implementing that package. We also welcome the substantial easing of monetary policy, a total of 400 basis points since December 2007, bringing the policy rate to a record low of 0.5%. In addition, the authorities have expanded their toolbox for dealing with the possible emergence of more severe financial strains. These tools include capital injections and other policy measures that, while not needed now, are prudently being developed should the need arise.

“Third, the focus on financial stability. Canada’s banks were well capitalized entering the downturn and have avoided the large losses experienced in other countries. Moreover, credit growth has held up well, and financial strains are markedly less serious than elsewhere. This speaks to a strong regulatory and supervisory framework, as well as conservative practices by Canadian banks themselves, which have avoided the large toxic exposures that now weigh on some banking systems.

“Looking ahead, continued vigilance and readiness will be essential to respond to possible tail risks amid the economic downturn. With the global outlook marked by unusually high uncertainty, Canada has prudently taken proactive steps and should stand ready to act further in case downside risks appear.”



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