Canada's Potential Growth: Another Victim of the Crisis?

Author/Editor: Estevão, Marcello ; Tsounta, Evridiki
Publication Date: January 01, 2010
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This study investigates the impact of the current financial crisis on Canada's potential GDP growth. Using a simple accounting framework to decompose trend GDP growth into changes in capital, labor services and total factor productivity, we find a sizeable drop in Canadian potential growth in the short term. The estimated decline of about 1 percentage point originates from a sharply decelerating capital stock accumulation (as investment has dropped steeply) and a rising long-term unemployment rate (which would raise equilibrium unemployment rates). However, over the medium term, we expect Canada's potential GDP growth to gradually rise to around 2 percent, below the pre-crisis growth rate, mostly reflecting the effects of population aging and a secular decline in average working hours.
Series: Working Paper No. 10/13
Subject(s): Labor productivity | Capital accumulation | Economic growth | Global Financial Crisis 2008-2009 | Gross domestic product | Unemployment

Author's Keyword(s): Canada | potential growth | TFP | financial crisis | labor productivity
Publication Date: January 01, 2010
ISBN/ISSN: 9781451962048 Format: Paper
Stock No: WPIEA2010013 Pages: 453
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