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Canada Real GDP growth will decline to 1.4% in 2023. Higher borrowing costs will weigh on activity. Lower commodity prices have unwound last year’s terms of trade gains. Demand will strengthen through 2024, but annual output growth will remain below the economy’s long-run potential rate at 1.4%. Exports will benefit from improved global conditions, while immigration boosts private spending and labour supply. Price pressures will ebb as the jobless rate rises from recent lows. An investment recovery next year could be upended if credit conditions worsen, a risk that has increased with volatility abroad. Monetary policy should remain tight, with the policy interest rate kept at its current level until inflation nears target in 2024. Reduced fiscal support should help cool demand as living-cost relief is withdrawn. Reversing provincial fuel tax concessions would complement incentives for green investment, which the federal government is scaling up. In parallel to efforts to remove internal trade barriers, more can be done to facilitate labour mobility. Paring back stringent limits on densification could allow more housing in cities. This would head off future housing price pressures as population inflows increase. Inflation has fallen despite solid output and employment gains Economic growth was stronger than expected in the first quarter of 2023. Growth in manufacturing, construction and services more than offset production declines in natural resources industries. Higher borrowing costs continue to weigh on housing-market activity. Metropolitan housing prices and home sales are lower than a year ago but seem to be stabilising. Market expectations of lower interest rates next year are yet to translate into a sustained rise in building approvals, which should precede a residential construction recovery. Higher credit costs and weak sales growth expectations are weighing on business investment intentions. Retail activity has defied expectations of a downturn despite high inflation eroding purchasing power. Population growth is supporting total consumers’ expenditure, but average spending per person is little changed from pre-pandemic levels in real terms. Consumer surveys report heightened uncertainty about the economic outlook, consistent with still-high household saving rates.
Canada 1
Source: OECD Economic Outlook 113 database; Statistics Canada. StatLink 2 https://stat.link/nrug1l OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 1: PRELIMINARY VERSION © OECD 2023