{ "title": "Canada: Concluding Statement of the 2014 Article IV Mission", "publication": "IMF News, November 25, 2014", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs112614", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs112614", "overlayPath": "/en/news/articles/2015/09/28/04/52/mcs112614/index.md", "summary": "GDP growth for 2014 is estimated to be about 2¼ percent.", "publishDate": "2014-11-25", "sections": [ { "heading": "Overview and near-term outlook", "content": "- GDP growth for 2014 is estimated to be about 2¼ percent.\n- Economic slack has been gradually declining with growth running modestly above potential in most quarters since 2013.\n- Improving labor market: unemployment rate fell to a post-crisis low of 6½ percent in October.\n- Inflation has edged higher from last year’s subdued levels, partly driven by temporary factors; wage pressures remained modest.\n- Outlook: strong U.S. demand and a weaker Canadian dollar should support above-potential growth and a broadening recovery; inflation expected to remain close to the Bank of Canada’s target rate of 2 percent." }, { "heading": "External sector, exports, and investment", "content": "- Trade balance turned positive in the first half of 2014; net exports provided a sizeable contribution to growth.\n- Non-energy exports led the rebound—benefiting from the firming U.S. recovery and a weaker Canadian dollar.\n- Energy exports strong; Canadian crude oil continued gaining market share in the United States amid some easing in infrastructure bottlenecks.\n- Business investment remains tentative despite higher exports; firms cautious about demand outlook.\n- Investment has tended to replace or upgrade capital; hiring has focused on adding temporary capacity (one-third of jobs added so far in 2014 have been part-time—a share above its historical average)." }, { "heading": "Households and housing", "content": "- Private consumption resilient, supported by higher household wealth, rising disposable incomes, and relaxed financial conditions.\n- Household debt ratio has broadly stabilized—hovering over 150 percent of disposable income since 2013.\n- Housing markets reaccelerated, driven by major metropolitan areas (Toronto, Vancouver, Calgary).\n- Supply-side constraints and population/household formation support fundamentals in major markets; single-family homes are a major source of price increases.\n- Signs of overvaluation, especially associated with high-end buyers (reflected by uninsured mortgage credit growth).\n- Tighter mortgage insurance rules, reduced affordability, and new multi-family construction have contained price growth in other segments.\n- Mission welcomes OSFI guidelines to strengthen residential mortgage insurance underwriting practices." }, { "heading": "Financial sector resilience and reforms", "content": "- Canadian banks: highly profitable, favorable loan quality, low nonperforming loans, improving capitalization.\n- Stress tests from the 2013 FSAP Update suggest resilience to credit, liquidity, and contagion risks due to strong capital positions, stable funding, low interbank exposures, and extensive government-guaranteed mortgage insurance.\n- Increasing bank exposure to capital markets and foreign operations warrants close attention.\n- Life insurance and pension fund performance has improved noticeably.\n- Progress on international financial reform: Basel III Liquidity Coverage Ratio and leverage standards implemented and will take effect in January 2015; banks well positioned to meet proposed requirements in advance.\n- OSFI draft guideline for Derivatives Sound Practices and progress on federal stress-testing framework welcomed.\n- Outstanding FSAP recommendations remain on financial sector oversight, safety nets, and macro-prudential frameworks:\n - Need enhanced coordination across federal and provincial authorities in supervision and stress-testing; subject all systemic federally- and provincially-regulated entities to common stress-testing frameworks.\n - Provide a mandate for macro-prudential oversight to a single entity with broad participation and powers to collect necessary data.\n - Establish a mandate for crisis preparedness and an operational coordination framework to test authorities’ capacity to respond to crises." }, { "heading": "Monetary and macro-prudential policy", "content": "- Policy rate appropriately on hold at 1 percent since September 2010 to support domestic demand.\n- Recent fall in oil prices should have a mild dampening effect on growth and CPI inflation.\n- Given well-anchored inflation expectations and downside risks to export-driven growth, tightening can await firmer signs of a balanced and durable recovery with stronger business investment.\n- Rising long-term interest rates from expected U.S. monetary normalization could help moderate Canada’s housing sector.\n- Macro-prudential measures since 2008 broadly effective in mitigating financial stability risks: curbed growth in insured mortgage credit, strengthened credit standards, and damped house price increases.\n- Uninsured (low LTV) mortgages are rising noticeably (by 10 percent per year) and comprise the bulk of mortgage originations.\n- Further targeted actions could include tighter standards such as lower amortization limits for uninsured mortgages." }, { "heading": "Fiscal policy, intergovernmental coordination, and frameworks", "content": "- Fiscal consolidation should proceed at the general government level; federal government can adopt a more neutral stance going forward.\n- Improvement in fiscal position largely reflects federal consolidation while provincial fiscal adjustment has lagged.\n- Federal government expected to reach its balanced budget target in FY2015–16 and put debt on a downward path.\n- Given strong federal fiscal footing, shifting to a neutral stance is consistent with remaining fiscal goals; recently announced tax cuts and enhanced child benefits align with this direction.\n- Merit in using fiscal resources for targeted growth-friendly measures (e.g., R&D, SMEs, venture capital, strategic infrastructure) or reducing federal income taxes to provide more tax space to provinces.\n- Provincial consolidation plans should proceed, especially in provinces with higher public debt; plans rely on ambitious expenditure restraint and should be supported by strategic spending reviews and possibly revenue measures.\n- Strengthening medium-term frameworks:\n - Federal level: explicit medium-term fiscal targets and regular spending reviews; if balanced budget legislation introduced, rule should be transparent, easy-to-communicate, ensure convergence to medium-term objectives, and allow flexibility to avoid procyclicality. Parliamentary Budget Office could monitor implementation.\n - Provincial level: regular spending reviews, possible role for independent fiscal agencies; extend long-term fiscal forecasts and publish consolidated general government fiscal forecasts in consultation with provinces; consider data sharing mechanism for long-term fiscal assumptions and forecasts." }, { "heading": "Structural policies and productivity", "content": "- Continue reform efforts to increase productivity: improve skills-job matching, promote penetration of information and communication technologies, foster business investment in R&D.\n- Enhance interprovincial and international trade (including implementation of major trade agreements), improve competition in network sectors, and address infrastructure constraints in energy exports to boost medium-term growth." }, { "heading": "Risks, distributional effects, and scenarios", "content": "- Balance of risks modestly tilted to the downside.\n- Key external downside risks: faster-than-expected tightening of global financial conditions and further decline in global oil prices from weaker demand.\n- Deeper downside risks: combination of external shocks amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices.\n- Upside possibilities: stronger-than-expected U.S. demand and faster resolution of infrastructure bottlenecks supporting energy sector activity.\n- Lower oil prices present a challenge and opportunity: likely to cool activity in oil-rich provinces but benefit provinces reliant on manufacturing and services; narrower price discount for Canadian oil and strong U.S. growth would cushion impact; productivity gains in other sectors will be increasingly important." }, { "heading": "Key policy recommendations and near-term actions", "content": "- Monetary policy: remain accommodative until firmer signs of a balanced, durable recovery with stronger business investment.\n- Macro-prudential: maintain and, if necessary, tighten targeted measures to contain housing vulnerabilities (e.g., lower amortization limits for uninsured mortgages).\n- Reduce taxpayers’ exposure to housing market and increase private sector risk retention:\n - Implement plans to prohibit government-backed insured mortgages in non-CMHC securitization programs and gradually limit insurance of low-LTV mortgages to those used in CMHC securitization.\n - Consider further reduction of portfolio insurance for CMHC and private mortgage insurers and introduce more risk-sharing.\n - Re-examine dimensions of extensive government-backed mortgage insurance as a longer-term agenda, including managing transition from market reliance on government-backed instruments.\n- Strengthen financial oversight, macro-prudential frameworks, and crisis management by enhancing federal-provincial coordination and providing clear mandates and data powers to responsible entities.\n- Fiscal policy: proceed with consolidation at the general government level; federal government may shift to a more neutral stance and use fiscal space for targeted growth-friendly measures; provinces should pursue durable adjustment supported by spending reviews and possible revenue measures.\n- Structural reforms: continue reforms to boost productivity, competition, trade, and address infrastructure constraints.\n\nSource: Canada: Concluding Statement of the 2014 Article IV Mission (November 25–26, 2014).\n\n---\n\n\n References\n\n- Canada and the IMF\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs112614" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/52/mcs112614/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/52/mcs112614/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/52/mcs112614/bundle-manifest.json)", "Published: November 25, 2014", "GDP growth for 2014 is estimated to be about 2¼ percent.", "Economic slack has been gradually declining with growth running modestly above potential in most quarters since 2013.", "Improving labor market: unemployment rate fell to a post-crisis low of 6½ percent in October.", "Inflation has edged higher from last year’s subdued levels, partly driven by temporary factors; wage pressures remained modest.", "Outlook: strong U.S. demand and a weaker Canadian dollar should support above-potential growth and a broadening recovery; inflation expected to remain close to the Bank of Canada’s target rate of 2 percent.", "Trade balance turned positive in the first half of 2014; net exports provided a sizeable contribution to growth.", "Non-energy exports led the rebound—benefiting from the firming U.S. recovery and a weaker Canadian dollar.", "Energy exports strong; Canadian crude oil continued gaining market share in the United States amid some easing in infrastructure bottlenecks.", "Business investment remains tentative despite higher exports; firms cautious about demand outlook.", "Investment has tended to replace or upgrade capital; hiring has focused on adding temporary capacity (one-third of jobs added so far in 2014 have been part-time—a share above its historical average).", "Private consumption resilient, supported by higher household wealth, rising disposable incomes, and relaxed financial conditions.", "Household debt ratio has broadly stabilized—hovering over 150 percent of disposable income since 2013.", "Housing markets reaccelerated, driven by major metropolitan areas (Toronto, Vancouver, Calgary).", "Supply-side constraints and population/household formation support fundamentals in major markets; single-family homes are a major source of price increases.", "Signs of overvaluation, especially associated with high-end buyers (reflected by uninsured mortgage credit growth).", "Tighter mortgage insurance rules, reduced affordability, and new multi-family construction have contained price growth in other segments.", "Mission welcomes OSFI guidelines to strengthen residential mortgage insurance underwriting practices.", "Canadian banks: highly profitable, favorable loan quality, low nonperforming loans, improving capitalization.", "Stress tests from the 2013 FSAP Update suggest resilience to credit, liquidity, and contagion risks due to strong capital positions, stable funding, low interbank exposures, and extensive government-guaranteed mortgage insurance.", "Increasing bank exposure to capital markets and foreign operations warrants close attention.", "Life insurance and pension fund performance has improved noticeably.", "Progress on international financial reform: Basel III Liquidity Coverage Ratio and leverage standards implemented and will take effect in January 2015; banks well positioned to meet proposed requirements in advance.", "OSFI draft guideline for Derivatives Sound Practices and progress on federal stress-testing framework welcomed.", "Outstanding FSAP recommendations remain on financial sector oversight, safety nets, and macro-prudential frameworks:", "Policy rate appropriately on hold at 1 percent since September 2010 to support domestic demand.", "Recent fall in oil prices should have a mild dampening effect on growth and CPI inflation.", "Given well-anchored inflation expectations and downside risks to export-driven growth, tightening can await firmer signs of a balanced and durable recovery with stronger business investment.", "Rising long-term interest rates from expected U.S. monetary normalization could help moderate Canada’s housing sector.", "Macro-prudential measures since 2008 broadly effective in mitigating financial stability risks: curbed growth in insured mortgage credit, strengthened credit standards, and damped house price increases.", "Uninsured (low LTV) mortgages are rising noticeably (by 10 percent per year) and comprise the bulk of mortgage originations.", "Further targeted actions could include tighter standards such as lower amortization limits for uninsured mortgages.", "Fiscal consolidation should proceed at the general government level; federal government can adopt a more neutral stance going forward.", "Improvement in fiscal position largely reflects federal consolidation while provincial fiscal adjustment has lagged.", "Federal government expected to reach its balanced budget target in FY2015–16 and put debt on a downward path.", "Given strong federal fiscal footing, shifting to a neutral stance is consistent with remaining fiscal goals; recently announced tax cuts and enhanced child benefits align with this direction.", "Merit in using fiscal resources for targeted growth-friendly measures (e.g., R&D, SMEs, venture capital, strategic infrastructure) or reducing federal income taxes to provide more tax space to provinces.", "Provincial consolidation plans should proceed, especially in provinces with higher public debt; plans rely on ambitious expenditure restraint and should be supported by strategic spending reviews and possibly revenue measures.", "Strengthening medium-term frameworks:", "Continue reform efforts to increase productivity: improve skills-job matching, promote penetration of information and communication technologies, foster business investment in R&D.", "Enhance interprovincial and international trade (including implementation of major trade agreements), improve competition in network sectors, and address infrastructure constraints in energy exports to boost medium-term growth.", "Balance of risks modestly tilted to the downside.", "Key external downside risks: faster-than-expected tightening of global financial conditions and further decline in global oil prices from weaker demand.", "Deeper downside risks: combination of external shocks amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices.", "Upside possibilities: stronger-than-expected U.S. demand and faster resolution of infrastructure bottlenecks supporting energy sector activity.", "Lower oil prices present a challenge and opportunity: likely to cool activity in oil-rich provinces but benefit provinces reliant on manufacturing and services; narrower price discount for Canadian oil and strong U.S. growth would cushion impact; productivity gains in other sectors will be increasingly important.", "Monetary policy: remain accommodative until firmer signs of a balanced, durable recovery with stronger business investment.", "Macro-prudential: maintain and, if necessary, tighten targeted measures to contain housing vulnerabilities (e.g., lower amortization limits for uninsured mortgages).", "Reduce taxpayers’ exposure to housing market and increase private sector risk retention:", "Strengthen financial oversight, macro-prudential frameworks, and crisis management by enhancing federal-provincial coordination and providing clear mandates and data powers to responsible entities.", "Fiscal policy: proceed with consolidation at the general government level; federal government may shift to a more neutral stance and use fiscal space for targeted growth-friendly measures; provinces should pursue durable adjustment supported by spending reviews and possible revenue measures.", "Structural reforms: continue reforms to boost productivity, competition, trade, and address infrastructure constraints.", "[Canada and the IMF](http://www.imf.org/external/country/CAN/index.htm)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/52/mcs112614/index.md", "json": "/en/news/articles/2015/09/28/04/52/mcs112614/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/52/mcs112614/bundle-manifest.json" }, "generatedAtUtc": "2026-09-27T00:48:20.549Z" }