(AFP) – Dec 19, 2007

WASHINGTON (AFP) — The International Monetary Fund revised downward its 2008 economic growth forecast for Canada on Wednesday due mainly to the slowing economy of the United States, its largest trading partner.

The IMF said Canada's economy would grow at a rate less than its October estimate of 2.3 percent, but would not say by how much less. A firm figure is expected in February.

"After five years of strong growth, the economy is forecast to slow in the next few quarters," the IMF said in its report.

"The drag from external factors should intensify with a weakening US economy and recent (Canadian) currency appreciation, while domestic demand is expected to moderate as financial conditions tighten and real income growth normalizes."

It noted that domestic demand could remain stronger than expected and buoy the Canadian economy, but added, "Large downside risks to growth increasingly outweigh the significant upside potential, given a possible US recession and risks that global financial conditions could tighten further."

As such, the IMF praised the Bank of Canada's key interest rate cut to 4.25 percent on December 4, reversing a quarter percentage point hike in July.

It noted that Canadian dollar parity with the US greenback resulted in "a surprisingly strong and rapid pass-through to consumer prices, which alleviated inflation concerns even though output is still above potential."

Copyright © 2009 AFP. All rights reserved. More »