Canada projection note OECD Economic Outlook November 2023

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Canada Real GDP growth will drop to 0.8% in 2024, reflecting slowing domestic demand in the wake of higher borrowing costs and weakening exports, before recovering to 1.9% in 2025 as improved global conditions strengthen exports. Immigration will continue to boost private spending and labour supply. Price pressures will ebb in the face of slowing demand and rising unemployment. Were unemployment to rise faster than expected, there could be a substantial fall off in households’ consumption demand and a deeper downturn. The policy interest rate should be kept at its current level until inflation nears its target in 2024. Fiscal consolidation, partly due to the termination of cost-of-living relief, will also help cool the economy. Ensuring long-run fiscal sustainability while accommodating Canada’s multi-year spending pressures may require tax reforms and closer attention to spending efficiency. Further efforts to boost business productivity would expand the fiscal revenue base, alongside raising economic capacity and improving standards of living. Output growth has stalled Economic activity has slowed in recent months. Following a strong first quarter (real GDP grew by 0.6%), output growth stalled in the second quarter with effectively zero growth. Data suggest the weakness has continued. In July and August, estimated monthly GDP growth was weak, as were retail sales volumes. Headline inflation spiked up in recent months principally due to increasing fuel prices. Core inflation continues to decline and labour market tensions have eased. The rate of unemployment was 5.7% in October, half a percentage point above rates at the beginning of the year and the job vacancy rate has continued to fall. Nevertheless, by some metrics, the labour market remains tight compared with prepandemic norms. Wage growth has remained elevated in recent months.

Canada 1

1. Per capita. Source: OECD Economic Outlook 114 database; and Statistics Canada. StatLink 2 https://stat.link/1qd3lf

OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 2: PRELIMINARY VERSION © OECD 2023


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