Mubasher: Canada’s economy has enjoyed strong performance with robust growth despite turmoil fuelled by trade tensions, the International Monetary Fund (IMF) said in its newest report on the country.

Concerns about the outcome of negotiations of North American Free Trade Agreement (NAFTA) and the impact of 2017 US Tax Cuts and Jobs Act have weighted on Canada’s competitiveness on the medium-term, it added.

This came after the IMF’s executive board concluded its visit to Canada where it assessed economic and financial developments.

Canada’s pace of economic growth is set to continue on the medium-term, with gross domestic product (GDP) returning to a more sustainable rate of nearly 2% in 2018 and 2019.

The rapidly expanding US economy will bolster its northern neighbour’s exports on the short term, which in turn will trim the current account deficit.

However, weakening external competitiveness and slow growth of labour force productivity along with an aging population are set to curtail potential growth over the medium term to 1.75%, sending it below its historical average.

Accompanied with rising unemployment and acute contraction in private consumption, a sharp correction in the housing market, which showed signs of cooling down after a tranche of macro-prudential measures and monetary tightening, would pose risks to financial stability and growth, the IMF warned.

In addition, external risks, including the impact of US tax reductions on Canada’s medium-term competitiveness and the looming escalation in trade disputes as well as the concerns regarding the outcome of NAFTA talks, become even more critical in the meantime.

Canada’s “monetary policy stance has been broadly appropriate and inflation is well contained,” the IMF stated, recommending rebuilding policy buffers, while maintaining reforms to reinforce competitiveness and productivity.

A review of Canadian tax system could reveal the scope of improving efficiency, the IMF said, noting that the total impact of the recently introduced US tax reform needs to be comprehensively studied.

As for NAFTA, the IMF called on Canada and related parties to reach a deal within a reasonable timeframe that supports and expands trade and promotes competition.

The IMF welcomed the signing of the Comprehensive and Progressive Agreement for Trans Pacific Partnership.