The collapse of the North American Free Trade Agreement would cut at least 0.4 percent from Canada's economic growth, the IMF said Monday, after negotiations to revamp the 1994 pact bogged down. "Failure to reach an agreement within a reasonable timeframe could impact investment and growth for an extended period," the International Monetary Fund said in its annual review.
"In the event negotiations fail and there is a reversion to tariff rates that satisfy WTO rules, long-run Canadian real GDP could be reduced by 0.4 percent relative to the baseline forecast, and by even more if non-tariff trade costs increase," it said.
The IMF otherwise projected Canadian GDP will slow to 2.1 percent in 2018 and to 2.0 percent next year, after posting 3.0 percent, or the highest growth rate among G7 economies, in 2017. Canada, Mexico and the United States have held several rounds of talks over the past nine months to try to come up with a new NAFTA deal to satisfy President Donald Trump's demands for better terms for the US, including a larger share of North American auto manufacturing.
Prime Minister Justin Trudeau said last week a deal was within reach, but the Trump administration's insistence on a 5-year NAFTA sunset clause remained a key obstacle.
Further complicating efforts, Canada and Mexico vowed retaliation on Thursday after Washington imposed steep tariffs on steel and aluminium imports from its neighbours.
The Canadian economy, said the IMF, has been "robust" and its hot housing market, which concerned economists, "is finally showing signs of cooling down" in response to new tighter mortgage lending rules and other measures.