(Adds details)
OTTAWA, Jan 28 (Reuters) - Canada's economy will shrink by 1.2 percent this year, the International Monetary Fund said on Wednesday, a day after Ottawa presented a budget based on a more optimistic assumption.
Prime Minister Stephen Harper's Conservative government said it expected real gross domestic product to contract 0.8 percent this year, based on the average forecast of private sector economists.
Canada's opposition Liberals, which will determine on Wednesday whether to support the budget or bring down the minority government, questioned on Tuesday whether Harper was underestimating the gravity of the economic crisis.
To be sure, the government acknowledged an unusual degree of uncertainty in its outlook by opting for its own more pessimistic view on nominal GDP. It assumed a contraction of 2.7 percent in 2009 while the economists it consulted had forecast a 1.2 percent decline, on average.
The IMF also took a more cautious view on Canada's recovery from the recession, forecasting 1.6 percent growth for 2010. The Bank of Canada forecasts 3.8 percent growth next year and the Department of Finance sees 2.4 percent growth.
"This is the weakest figure we have seen, and it appears that the IMF has revised the Canadian outlook downward by the most of any advanced economy," said Eric Lascelles, at TD Securities, in a note.
The IMF's 2010 estimate is 1.4 percentage points lower than its previous estimate in November.
"In the Canadian context, what is most noteworthy is that the Bank of Canada and the federal government are of the minority opinion regarding prospects for a short-lived period of weakness in the Canadian economy followed by a strong 2010 rebound," said Derek Holt and Karen Cordes at Scotia Capital.
The IMF slashed its forecast for 2009 world economic growth to 0.5 percent, the weakest since the Second World War, from a November estimate of 2.2 percent.
Canada's economy was seen faring slightly better than the average for advanced economies, which the Washington-based lender sees declining 2 percent on average. The U.S. economy, on which Canada depends for exports, will shrink 1.6 percent and the Euro area will shrink 2 percent, the IMF said. (Reporting by Louise Egan; Editing by Frank McGurty)