IMF’s expectations for Canada’s economic outlook take a change for the worse

Source: IMF lowers Canada's 2008 economic outlook

The IMF expects a lackluster year in 2008 for Canada, having on Wednesday decreased its projections for its economy from its original projections earlier. The IMF gives as a reason for this downward trajectory Canada’s neighbor and largest trading partner: The U.S. Unfortunately, because of the poor shape of the U.S. economy, Canada is being dragged down as well.

As recent as October, the IMF had projected that Canada could expect economic growth in the 2.3 percent range, but now says that is not going to happen—however, the Fund wouldn’t commit itself to saying exactly how much less than 2.3 percent growth would be, claiming instead that a firm figure will be published in early February.

The IMF further said that this downward trend will continue as pressure from external factors and an increasingly weakened US and Canadian dollar take their toll on the countries’ respective economies; accompanying this will be a slowing down of domestic demand in both regions.

Nevertheless, the IMF commended the Bank of Canada’s choice to cut interest rates down to 4.25 percent in early December, undoing damage done by a point hike that had occurred in July.


Question: Would a simple increase in domestic demand be enough to save Canada from this economic downturn?