Effect of oil price shock still unfolding but economy coping well so far: IMF

Canada’s economy has coped well with a shocking decline in oil prices but the country’s central bank and federal government should remain prepared to do more if the need arises, an International Monetary Fund analysis released Monday has concluded.

Cheng Hoon Lim, head of the IMF’s annual review of Canada’s economic performance, said it’s too soon to calculate the impact of the Alberta wildfires that have devastated a huge area including parts of Fort McMurray.

"We need to see the extent of the damage that’s been done to the oilsands industry," Lim said in a conference call from Washington, D.C.

Still, rebuilding efforts in Alberta will likely provide "a positive boost to consumption and to investments," she added.

Lim also said the Bank of Canada has room to lower its policy rate, currently at 0.5 per cent, to stimulate the economy.

"But for the Bank of Canada to resort to unconventional monetary policies, it will require another big shock to the Canadian economy — and we see that risk, at this stage, as being very remote," Lim said.

Among the global risks identified by the IMF are persistently weak oil prices, trade and investments.

"On the domestic front, the high level of household debt and the housing market remain the most important vulnerabilities," Lim said. "We expect to see loan delinquencies gradually rising, although these would be from very low levels."

The IMF said Canada’s current economic slowdown has renewed concern about record high household debt levels and high housing prices in certain markets, such as Vancouver and Toronto.

It says the Bank of Canada’s policy of low interest rates and the federal government’s plan to increase infrastructure spending are appropriate, given the need to support economic growth in the medium term.

But the IMF report says it’s time for Canada to tackle its record of low labour productivity and calls for a more targeted approach to the Liberal government’s new child tax benefit to enable more women to participate in the workforce.

Lim said the IMF’s research in Canada and elsewhere has shown a statistically significant, positive effect on labour productivity when women enter the labour force.

-The Canadian Press