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 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)