IMF Executive Board Concludes 2022 Article IV Consultation with Canada
IMF News, December 8, 2022
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- Published: December 8, 2022
Macroeconomic overview and recent developments
- Real GDP contracted by 5.2 percent in 2020 and bounced back by 4.5 percent in 2021; growth continued strongly in the first half of 2022.
- Growth is expected to slow to 3.3 percent in 2022 and 1.5 percent in 2023.
- Labor markets tightened substantially; the unemployment rate hit a record low of 4.9 percent in June and July 2022.
- CPI inflation surged to a 40-year high of 8.1 percent in June 2022 and was 6.9 percent in October 2022.
- House prices are expected to fall 20 percent or more from peak to trough over the next few years (post-peak retracement of pandemic run-up).
- The pandemic and climate change remain important medium- to long-term risks; Russia’s war on Ukraine has had a smaller impact on Canada relative to many other countries due to its status as a commodity exporter.
Policy assessment and recommendations
- Monetary policy
- The Bank of Canada (BoC) implemented decisive policy tightening.
- Recommendation: Maintain a tight monetary stance to bring inflation back to target and avoid de-anchoring of inflation expectations.
- Recommendation: Continue clear communication of policy intentions. Some Directors cautioned that publishing a monetary policy rate path could be misinterpreted as a commitment.
- Fiscal policy
- Directors concurred fiscal policy should support the fight against inflation.
- Recommendation: Keep support for households facing high fuel and food prices temporary and targeted.
- Recommendation: Save further revenue windfalls and consider accelerating deficit reduction from the next budget onward.
- Directors welcomed the federal government’s commitment to reduce the federal debt ratio and publication of long-term fiscal projections.
- Some Directors were open to a specific debt anchor supported by an operational rule and to incorporate rules-based fiscal stimulus into the policy toolkit; other Directors did not see a clear need for these measures.
- Financial stability and housing
- Policy tightening has triggered a housing correction; the financial system is expected to remain resilient.
- Recommendation: To durably address housing affordability, emphasize further policy measures to boost the supply of housing.
- Directors saw scope to enhance financial regulation in areas including crypto assets and AML/CFT issues, and to strengthen interagency cooperation and data gaps.
- Climate and structural policies
- Directors commended Canada’s ambitious plans for reducing its currently high CO2 emissions.
- Recommendation: Address potential competitiveness impacts from differing international policy approaches; Canada could help catalyze international agreement on a differentiated carbon price floor.
- Recommendation: Develop a comprehensive strategy to help the economy and workers transition away from carbon-intensive products and processes.
Risks and outlook
- The baseline forecast faces important risks; shocks could easily push the economy into a mild recession.
- Inflation is projected to continue declining, returning to the 2-percent target by end-2024.
- The unemployment rate is projected to rise moderately, reaching its pre-pandemic level of around 6 percent by next year.
- Financial system resilience is expected to hold despite housing market correction.
Selected economic indicators and projections (exact figures from source)
- Nominal GDP (2021): Can$ 2,496 billion (US$ 1,990 billion)
- Quota: SDR 11,023.9 million
- Population (2021): 38.0 million
- GDP per capita (2021): US$ 52,079
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
Projections (percentage change, unless otherwise indicated)
- Real GDP: 2019: 1.9; 2020: -5.2; 2021: 4.5; 2022: 3.3; 2023: 1.5; 2024: 1.6; 2025: 2.3; 2026: 1.7; 2027: (not provided in row)
- Total domestic demand: 2019: 1.2; 2020: -6.4; 2021: 6.1; 2022: 5.5; 2023: 1.8; 2024: 1.3; 2025: 2.6; 2026: 1.4
- Private consumption (selected years shown in source): 2019: -6.1; 2020: 4.9; 2021: 8.7; 2022: 3.2; 2023: 0.8
- Total investment (selected years shown in source): 2019: 0.2; 2020: -7.9; 2021: 12.3; 2022: 2.1; 2023: -1.1; 2024: 2.8
- Net exports, contribution to growth: 2019: 0.6; 2020: 0.5; 2021: -2.0; 2022: -2.2; 2023: -0.4; 2024: 0.3; 2025: -0.3
- Unemployment rate (average) 2/: 2019: 5.8; 2020: 9.6; 2021: 7.4; 2022: 5.3; 2023: 5.9; 2024: 6.2; 2025: 6.0
- CPI inflation (average): 2019: 0.7; 2020: 3.4; 2021: 6.9; 2022: 4.2; 2023: 2.4; 2024: 2.0
- Gross national saving (percent of GDP) 1/: 2019: 21.0; 2020: 20.5; 2021: 23.8; 2022: 22.8; 2023: 23.1; 2024: 22.7; 2025: 22.5; 2026: 22.3
- Gross domestic investment (percent of GDP): 2019: 23.7; 2020: 23.3; 2021: 23.0; 2022: 23.5; 2023: 23.9; 2024: 24.2
- General Government Fiscal Indicators (NA basis, percent of GDP):
- Revenue: 2019: 40.7; 2020: 41.6; 2021: 41.0; 2022: 41.5; 2023: 41.2; 2024: 41.3
- Expenditures: 2019: 53.0; 2020: 46.0; 2021: 43.0; 2022: 42.3; 2023: 42.0; 2024: 41.8; 2025: 41.7
- Overall balance: 2019: 0.0; 2020: -11.4; 2021: -5.0; 2022: -1.5; 2023: -0.7; 2024: -0.6
- Gross Debt: 2019: 87.2; 2020: 117.8; 2021: 112.9; 2022: 101.9; 2023: 99.0; 2024: 97.1; 2025: 94.9; 2026: 93.3; 2027: 91.9
- Net debt: 2019: 33.6; 2020: 31.6; 2021: 30.6; 2022: 30.3; 2023: 30.0; 2024: 29.5; 2025: 29.0; 2026: 28.3
- Money and Credit (Annual average):
- Three-month treasury bill 2/: 2019: 0.1; 2020: 3.0; 2021: 2.5
- Ten-year government bond yield 2/: 2019: 3.1; 2020: 3.6
- Balance of Payments:
- Current account balance 1/: 2019: -1.8; 2020: -0.2; 2021: -1.0; 2022: -1.9
- Merchandise Trade balance 1/: 2019: -0.8; 2020: -0.5; 2021: -0.9; 2022: -1.3
- Export volume (percent change): 2020: -8.1; 2021: 2.7
- Import volume (percent change): 2020: -7.3; 2021: 8.8
- Terms of trade: 2019: -3.3; 2020: 14.1; 2021: 9.8; 2022: -1.7
IMF Press Release No. 22/421; December 8, 2022.