In its latest issue of the World Economic Outlook, the IMF forecasts 2.5% growth for Canada this year.

The IMF sees sharp acceleration, with growth expanding to 3.6% in 2003. Back in November the IMF only saw 0.8% growth for Canada this year. It sees inflation staying modest at 0.9%, and a modest drop in unemployment to 7.1% from 7.2%.

The higher outlook for Canada marks the biggest upward revision by the IMF on a G7 country. It also now says it was off by 1.6% on Japan, which it sees growing 2.3% in 2002, and the U.S. forecast is up 0.9% to 1.5% in 2002, rising to 2.8% in 2003. Canada is projected to be strongest among the G7 in both 2002 and 2003, although it lags projections for global output of 2.8% this year and 4.0% in 2003.

It credits easier monetary policy, the weak dollar and fiscal policy with keeping the Canadian downturn short and sweet. The IMF says that fiscal policy “provided support through the operation of the automatic stabilizers, previous expenditure and tax measures, and a moderate discretionary stimulus in the 2001/02 budget”.

Now it says, “Aided by the pickup in the United States, growth rebounded in the fourth quarter of 2001, and economic indicators suggest that a strong recovery is now under way. With the economy expected to reach its potential output sometime during the next year, the process of withdrawing monetary stimulus also will likely need to begin in the near term.”