IMF Executive Board Concludes 2019 Article IV Consultation with Canada
IMF News, June 25, 2019
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- Published: June 25, 2019
Key findings on recent performance and outlook
- Growth has slowed to a more sustainable level following the stellar pace set in 2017.
- Real GDP growth is projected to slow to 1.5 percent in 2019 and rise again in 2020 to 1.9 percent as the effects of a temporary slowdown in oil-related activity fades.
- Private consumption and residential investment have decelerated.
- A slowing global economy and low oil prices have dampened exports and business investment.
- A deal to overhaul NAFTA has been signed and awaits legislative approval; trade tensions between the U.S. and its major trading partners continue to cast a shadow over the outlook.
- Over the medium-term, weak external competitiveness, low productivity growth, and population aging will limit potential growth to around 1.7 percent.
Risks to the outlook
- Domestic:
- A sharp correction in the housing market, particularly if accompanied by a rise in unemployment and a collapse in private consumption, could spark additional risks to financial stability and growth.
- External:
- A larger-than-expected global growth slowdown.
- A sharp tightening of global financial conditions.
- An escalation of trade tensions between the U.S. and its major trading partners, which could include USMCA failing to get legislative approval.
Executive Board Assessment and policy guidance
- Directors commended authorities for sound management of the economy and progress in reducing financial sector vulnerabilities.
- Fiscal policy:
- Fiscal consolidation should remain gradual and growth-friendly.
- Directors welcomed the authorities’ commitment to preserve Canada’s low debt advantage and recommended using unexpected fiscal savings to reduce deficit and debt.
- Provinces with high deficits or high debt were encouraged to make the necessary fiscal adjustment.
- Many Directors saw benefits in well-designed fiscal rules to strengthen credibility and transparency; several Directors noted an explicit fiscal rule may have limited value added and could limit fiscal responsiveness to shocks.
- If downside risks materialize, automatic stabilizers should be allowed to operate fully.
- Directors welcomed ongoing efforts to review key elements of the tax system to enhance efficiency and competitiveness.
- Monetary policy:
- Directors supported the current accommodative stance of monetary policy.
- Given the balance of risks and uncertainty, monetary tightening should proceed with caution, guided by incoming data.
- Macroprudential and financial stability:
- Macroprudential measures have mitigated housing-related risks to financial stability.
- Authorities were encouraged to stand ready to adjust macroprudential tools if needed, and to harmonize provincial and municipal tax measures into broad-based tax measures targeted at speculative activity more generally.
- Supply-side policies to improve housing affordability would help address housing imbalances on a more durable basis.
- Financial sector governance and oversight:
- The overall financial system is assessed as healthy and resilient.
- Directors encouraged continued efforts to modernize the informal framework for systemic risk surveillance and crisis management, and to strengthen microprudential oversight and safety nets along the lines of the FSAP recommendations.
- Directors welcomed Canada’s voluntary participation in the Fund’s enhanced governance framework on the supply and facilitation of corruption and looked forward to further progress on strengthening the AML/CFT and anti-foreign bribery frameworks.
- Trade and structural policies:
- Directors welcomed the authorities’ commitment to trade diversification and free trade, commended Canada for leading international efforts to improve the multilateral trade system, and for rapid ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
- Directors encouraged all levels of government to work together to continue reducing internal trade barriers and better facilitate infrastructure investment.
- Directors stressed the importance of boosting long-term growth and supported initiatives to promote a more productive workforce, a more competitive business environment, and greener infrastructure.
Canada: Selected Economic Indicators (as reported)
- Nominal GDP (2018): Can$ 2,217 billion (US$ 1,711 billion)
- Quota: SDR 11,023.9 million
- GDP per capita (2018): US$ 46,243
- Population (2018): 37.0 million
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
Projections and recent historical data (percentage change, unless otherwise indicated)
- Real GDP:
- 2015: 0.7
- 2016: 1.1
- 2017: 3.0
- 2018: 1.8
- 2019: 1.5
- 2020: 1.9
- Total domestic demand:
- 2015: -0.1
- 2016: 3.9
- 2017: 1.7
- 2018: 0.6
- Private consumption:
- 2015: 2.3
- 2016: 2.2
- 2017: 3.5
- 2018: 2.1
- 2019: 1.3
- Total investment:
- 2015: -6.8
- 2016: -4.4
- 2017: 6.5
- 2018: 3.7
- Net exports, contribution to growth:
- 2015: 0.9
- 2016: 0.4
- 2017: -1.1
- 2018: 0.1
- Unemployment rate (average) 2/:
- 2015: 6.9
- 2016: 7.0
- 2017: 6.3
- 2018: 5.8
- 2019: 5.9
- 2020: 6.0
- CPI inflation (average):
- 2015: 1.4
- 2016: 1.6
- Gross national saving (percent of GDP) 1/:
- 2015: 20.3
- 2016: 19.7
- 2017: 20.7
- 2018: 20.4
- 2019: 20.2
- 2020: 21.1
- Gross domestic investment:
- 2015: 23.8
- 2016: 22.9
- 2017: 23.5
- 2018: 23.0
- 2019: 23.3
- General Government Fiscal Indicators 1/ (NA basis):
- Revenue:
- 2015: 40.0
- 2016: 40.1
- 2017: 39.9
- 2018: 39.8
- Expenditures:
- 2015: 40.6
- 2016: 40.3
- 2017: 40.7
- Overall balance:
- 2015: -0.4
- 2016: -0.3
- 2017: -0.8
- Gross Debt:
- 2015: 91.3
- 2016: 91.8
- 2017: 90.1
- 2018: 89.7
- 2019: 87.5
- 2020: 84.9
- Net debt 3/:
- 2015: 28.5
- 2016: 28.8
- 2017: 27.6
- 2018: 26.8
- 2019: 26.7
- 2020: 25.9
- Money and Credit (Annual average):
- Household Credit Growth:
- 2015: 4.9
- 2016: 5.5
- 2017: 4.0
- 2018: 2.6
- 2019: 4.2
- Business Credit Growth:
- 2015: 9.3
- 2016: 5.3
- 2017: 8.2
- 2018: 7.2
- Three-month treasury bill 2/:
- 2015: 0.5
- Ten-year government bond yield 2/:
- 2015: 2.5
- Balance of Payments:
- Current account balance 1/:
- 2015: -3.5
- 2016: -3.2
- 2017: -2.8
- 2018: -2.6
- 2019: -2.7
- 2020: -2.2
- Merchandise Trade balance 1/:
- 2015: -1.2
- 2016: -1.3
- 2017: -1.0
- 2018: -1.8
- 2019: -1.6
- Export volume (percent change):
- 2015: 3.4
- 2016: 3.1
- 2017: 2.4
- Import volume (percent change):
- 2015: 0.3
- 2016: 4.7
- 2017: 3.3
- Terms of trade:
- 2015: -7.1
- 2016: -4.6
IMF Press Release No. 19/236 — Executive Board conclusion of the 2019 Article IV consultation with Canada.
