OECD Economic Outlook May 2019, Country Notes: Canada

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Canada Growth is projected to recover to around 2% (annualised rate) in the second half of 2019. Exports will strengthen in response to an easing in Alberta’s mandatory oil production cuts and higher export market growth. Business investment will rise as firms move to increase capacity and productivity and in response to new tax incentives. Employment growth is on course to slow, but the unemployment rate should remain near record lows. The Bank of Canada is likely to maintain the current degree of monetary stimulus, which should be sufficient to keep inflation near the mid-point of its 1-3% medium-term target band. The fiscal policy stance is set to remain broadly neutral and, with small budget deficits, the debt-to-GDP ratio should continue to edge down. Macroprudential measures have helped take the steam out of the housing market and reduced lending to high-risk borrowers. The supply of affordable housing should be increased and social housing should be better maintained and targeted. Economic growth has slowed Economic growth has slowed as households have adjusted consumption expenditure to moderating income growth and higher interest rates, and businesses have cut investment in response to greater global trade policy uncertainty. Growth has also been weighed down by a sharp fall in oil export prices in late 2018, which has reduced domestic incomes, and by mandatory oil production cuts in Alberta. In addition to these cuts, slowing import demand growth in the United States has contributed to the fall in export growth.

Canada 1 Lower terms of trade have depressed incomes

House price increases have slowed sharply

Y-o-y % changes 10

Y-o-y % changes 35

Real GDP growth Vancouver

Terms of trade variation

8 6

30

Toronto

Real gross domestic income¹ growth

Canada

25

4

20

2

0

0

0

15 10

-2

5

-4

0

-6 -8

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

-5 2019

1. Real gross domestic income equals real GDP adjusted for changes in the terms of trade. Source: OECD Economic Outlook 105 database; Teranet; and Bank of Canada. StatLink 2 https://doi.org/10.1787/888933934109

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019


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