UPDATE 2-IMF sees Canada economy improving, warns C$ a risk

By Jeffrey Hodgson TORONTO, Nov 12 (Reuters) - Canada's economic outlook is improving, and its fiscal position is relatively strong, but the recovery could falter if its currency extends a recent rally, the International Monetary Fund said on Thursday. The multinational agency told the government and the central bank to keep their stimulus policies in place until a recovery is firmly established. "Now is definitely not the time for exit. Now is the time for stimulus.

The stimulus needs to be maintained while there are risks in the outlook," Charles Kramer, IMF Mission chief to Canada, told Reuters. Kramer, who spoke after the end of an IMF staff visit to Canada, said authorities needed to communicate their strategy for unwinding the stimulus properly in order to instill confidence that the withdrawal will be smooth. The global lender said improvements in the Canadian economy were largely due to a global recovery and the fiscal stimulus and monetary easing during the crisis. Risks include weaker-than-expected global growth and a further strengthening of the Canadian dollar, which is up more than 23 percent from the multiyear lows it hit in March. That has hit manufacturers and other exporters, and it helped contribute to a 0.1 percent decline in August gross domestic product that cast doubt on whether the country climbed out of recession in the third quarter. The government now forecasts a C$55.9 billion ($52.7 billion) deficit for the current fiscal year, up from C$5.8 billion in 2008-09. But Kramer said Canada's deficit- and debt-to-GDP ratios are low relative to the United States and other major Western countries, giving it flexibility to respond if the global economic recovery falters. "From a broader G7 point of view, while the (Canadian) deficit has come up and the debt has come up, Canada has got very favorable looking fiscal ratios," he said. "In the event there was a shock of whatever type that put some downward pressure on growth, certainly Canada ... would be well positioned to participate in additional stimulus in concert with other countries," he said. ($1=$1.06 Canadian) (Additional reporting by Emily Kaiser and Lesley Wroughton in Washington; editing by Janet Guttsman) Keywords: IMF/CANADA ([e-mail]; 416 941 8099; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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