{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with Canada",
  "publication": "IMF News, July 27, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/07/27/pr23278-canada-imf-executive-board-concludes-2023-article-iv-consultation-with-canada",
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  "summary": "The Canadian economy is decelerating, accompanied by a sharp decline in headline inflation. But, as in other similar countries, core inflation has been stickier, and short-term expectations remain elevated against the background of still-tight labor markets.",
  "publishDate": "2023-07-27",
  "sections": [
    {
      "heading": "Overview and Executive Board Assessment",
      "content": "- The Executive Board concluded the Article IV consultation with Canada and considered and endorsed the staff appraisal without a meeting.\n- The Canadian economy is decelerating, accompanied by a sharp decline in headline inflation, while core inflation has been stickier and short-term expectations remain elevated amid still-tight labor markets.\n- The financial system appears broadly resilient despite global banking stresses and ongoing mortgage resets at higher interest rates; the housing market is rebounding, partly reflecting the substantial increase in immigration.\n- The external position in 2022 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.\n- The outlook is subject to important downside risks; shocks could tip the economy into a mild recession.\n- Tight macro policies remain necessary. Assuming the economy evolves in line with baseline projections:\n  - Monetary policy should remain restrictive and data dependent.\n  - Quantitative tightening should continue, and enhancements to monetary policy communication could be pursued.\n  - Fiscal consolidation is proceeding, although at a slower pace than previously envisaged; fiscal policy should support inflation reduction goals.\n  - A quantitative fiscal framework, including a specific debt anchor and a supporting operational rule, would enhance policy credibility and communication.\n- Measures to promote housing affordability, particularly through increased supply, remain necessary.\n- Financial-sector policy enhancements recommended include strengthening capital and liquidity requirements on smaller banks and expanding stress testing of NBFIs.\n- Canada’s AML/CFT framework is generally appropriate but further focus is needed on assessment and mitigation of cross-border money laundering risks, particularly in the banking and real-estate sectors; the proposed Canada Financial Crimes Agency and steps toward beneficial-ownership registries are welcomed."
    },
    {
      "heading": "Recent Developments and Outlook",
      "content": "- Growth and inflation:\n  - Growth registered 3.4 percent in 2022, slowing sharply at the end of the year before rebounding in Q1:2023, driven primarily by strong trade and consumption.\n  - Growth is expected to decline to 1.7 percent in 2023 due to the contractionary stance of monetary and fiscal policies.\n  - Headline inflation fell from its June 2022 peak of 8.1 percent to 3.4 percent by May 2023.\n  - Core inflation declined from around 6 percent last year to 3.7 percent in May 2023.\n  - With continued tight policies and slowing growth, inflation is expected to approach the 2-percent target by end-2024.\n- Risks:\n  - External risks to a highly open economy like Canada are substantial and compound domestic vulnerabilities related to inflation expectations, the housing market, and household leverage.\n  - Shocks could push the economy into a mild recession."
    },
    {
      "heading": "Financial Sector and Housing",
      "content": "- The financial sector faces risks from:\n  - High household leverage and housing-market developments.\n  - Rising interest rates.\n  - Global banking stresses.\n- While resilient to date, scope exists to:\n  - Strengthen capital and liquidity requirements on smaller banks.\n  - Expand stress testing of NBFIs.\n- Progress continues on the 2019 FSAP recommendations, but data gaps and fragmentation remain important issues highlighted by recent global market volatility.\n- Housing market rebound noted; policies to improve affordability through increased supply are necessary."
    },
    {
      "heading": "Structural and Climate-Related Issues",
      "content": "- Canada is positioning itself as a reliable supplier of critical minerals and energy and has attracted some major new green investments.\n- Long-term challenges include:\n  - Strengthening the investment climate.\n  - Boosting productivity growth.\n  - Implementing ambitious policies to achieve climate mitigation targets.\n- Canada is among the world’s top-ten emitters of greenhouse gases, but announced climate mitigation policies should go a long way toward delivering its NDCs.\n- Potential adverse competitiveness implications of climate policies could be mitigated by exchange rate flexibility and well-designed recycling of carbon tax revenues; remaining effects could be addressed through international cooperation, such as on a carbon price floor.\n- Green industrial policies can help the transition but pose design risks; Canada should eschew approaches that distort trade."
    },
    {
      "heading": "Projections and Scenarios (selected)",
      "content": "- Growth (Real GDP, percent change):\n  - 2020: -5.1\n  - 2021: 5.0\n  - 2022: 3.4\n  - 2023: 1.7\n  - 2024: 1.4\n  - 2025: 2.2\n  - 2026: 1.9\n- Total domestic demand (percent change):\n  - 2020: -6.0\n  - 2021: 6.6\n  - 2022: 4.7\n  - 2023: -0.5\n  - 2024: 1.5\n  - 2025: 2.6\n  - 2026: 2.1\n  - 2027: 2.0\n- Private consumption (percent change):\n  - 2020: -6.1\n  - 2021: 4.8\n  - 2022: 3.9\n  - 2023: 2.3\n  - 2024: 3.5\n- Total investment (percent change):\n  - 2020: -7.4\n  - 2021: 13.9\n  - 2022: 7.0\n  - 2023: -9.5\n  - 2024: 0.8\n  - 2025: 2.5\n  - 2026: 1.8\n- Unemployment rate (average, percent):\n  - 2020: 9.7\n  - 2021: 7.5\n  - 2022: 5.3\n  - 2023: 5.5\n  - 2024: 6.2\n  - 2025: 6.1\n  - 2026: 6.0\n- CPI inflation (average):\n  - 2020: 0.7\n  - 2021: 6.8\n  - 2022: 3.6"
    },
    {
      "heading": "Fiscal and Debt Indicators (percent of GDP)",
      "content": "- General government revenue:\n  - 2020: 41.8\n  - 2021: 41.5\n  - 2022: 40.6\n  - 2023: 40.7\n  - 2024: 40.9\n  - 2025: 41.0\n- General government expenditures:\n  - 2020: 52.7\n  - 2021: 45.9\n  - 2022: 41.4\n  - 2023: 41.3\n  - 2024: 41.2\n  - 2025: 41.1\n- Overall balance:\n  - 2020: -10.9\n  - 2021: -4.4\n  - 2022: -0.8\n  - 2023: -0.6\n- Gross Debt:\n  - 2020: 118.9\n  - 2021: 115.1\n  - 2022: 106.7\n  - 2023: 105.8\n  - 2024: 103.5\n  - 2025: 101.0\n  - 2026: 98.8\n  - 2027: 96.7\n  - 2028: 94.7\n- Net debt:\n  - 2020: 15.7\n  - 2021: 15.4\n  - 2022: 14.3\n  - 2023: 14.4\n  - 2024: 14.2\n  - 2025: 14.0\n  - 2026: 13.6"
    },
    {
      "heading": "Savings, Investment, Credit, and External Balances",
      "content": "- Gross national saving (percent of GDP):\n  - 2020: 20.1\n  - 2021: 23.5\n  - 2022: 24.2\n  - 2023: 21.5\n  - 2024: 21.4\n  - 2025: 21.2\n  - 2026: 21.0\n  - 2027: 20.8\n  - 2028: 20.5\n- Private saving (percent of GDP):\n  - 2020: 26.9\n  - 2021: 24.3\n  - 2022: 21.7\n  - 2023: 18.9\n  - 2024: 19.0\n  - 2025: 18.8\n  - 2026: 18.5\n  - 2027: 18.3\n  - 2028: 18.0\n- Personal saving (percent of GDP):\n  - 2020: 32.3\n  - 2021: 22.7\n  - 2022: 12.0\n  - 2023: -2.0\n  - 2024: -2.2\n  - 2025: -1.8\n  - 2026: (not provided)\n- Business saving (percent of GDP):\n  - 2020: -5.5\n  - 2021: 16.3\n  - 2022: 16.7\n  - 2023: 19.1\n  - 2024: 19.8\n- Gross domestic investment (percent of GDP):\n  - 2020: 22.3\n  - 2021: 23.8\n  - 2022: 24.5\n  - 2023: 23.0\n  - 2024: 22.9\n- Household Credit Growth (annual average):\n  - 2020: 5.2\n  - 2021: 10.8\n  - 2022: 9.9\n- Business Credit Growth (annual average):\n  - 2020: -0.9\n  - 2021: -12.7\n  - 2022: 6.4\n- Balance of Payments:\n  - Current account balance (percent of GDP):\n    - 2020: -1.7\n    - 2021: -1.9\n    - 2022: -2.4\n  - Merchandise Trade balance (percent of GDP):\n    - 2020: 0.2\n    - 2021: -1.1\n    - 2022: -1.4\n  - Export volume (percent change):\n    - 2020: -7.9\n    - 2021: 5.9\n    - 2022: 1.2\n    - 2023: 3.1\n  - Import volume (percent change):\n    - 2020: -7.1\n    - 2021: 8.7\n    - 2022: 3.8\n    - 2023: 4.2\n    - 2024: 4.6\n    - 2025: 4.5\n  - Terms of trade:\n    - 2020: -3.4\n    - 2021: -9.0\n    - 2022: 0.0"
    },
    {
      "heading": "Key Country Indicators",
      "content": "- Nominal GDP (2022): Can$ 2,785 billion (US$ 2,139 billion)\n- Quota: SDR 11,023.9 million\n- Population (2022): 39.6 million\n- GDP per capita (2022): US$ 54,015\n- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.\n\nIMF Press Release No. 23/278; data presented in the Press Release were based on information available as of July 13, 2023.\n\n---\n\n\n References\n\n- Canada and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/07/27/pr23278-canada-imf-executive-board-concludes-2023-article-iv-consultation-with-canada"
    }
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    "Published: July 27, 2023",
    "The Executive Board concluded the Article IV consultation with Canada and considered and endorsed the staff appraisal without a meeting.",
    "The Canadian economy is decelerating, accompanied by a sharp decline in headline inflation, while core inflation has been stickier and short-term expectations remain elevated amid still-tight labor markets.",
    "The financial system appears broadly resilient despite global banking stresses and ongoing mortgage resets at higher interest rates; the housing market is rebounding, partly reflecting the substantial increase in immigration.",
    "The external position in 2022 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.",
    "The outlook is subject to important downside risks; shocks could tip the economy into a mild recession.",
    "Tight macro policies remain necessary. Assuming the economy evolves in line with baseline projections:",
    "Measures to promote housing affordability, particularly through increased supply, remain necessary.",
    "Financial-sector policy enhancements recommended include strengthening capital and liquidity requirements on smaller banks and expanding stress testing of NBFIs.",
    "Canada’s AML/CFT framework is generally appropriate but further focus is needed on assessment and mitigation of cross-border money laundering risks, particularly in the banking and real-estate sectors; the proposed Canada Financial Crimes Agency and steps toward beneficial-ownership registries are welcomed.",
    "Growth and inflation:",
    "Risks:",
    "The financial sector faces risks from:",
    "While resilient to date, scope exists to:",
    "Progress continues on the 2019 FSAP recommendations, but data gaps and fragmentation remain important issues highlighted by recent global market volatility.",
    "Housing market rebound noted; policies to improve affordability through increased supply are necessary.",
    "Canada is positioning itself as a reliable supplier of critical minerals and energy and has attracted some major new green investments.",
    "Long-term challenges include:",
    "Canada is among the world’s top-ten emitters of greenhouse gases, but announced climate mitigation policies should go a long way toward delivering its NDCs.",
    "Potential adverse competitiveness implications of climate policies could be mitigated by exchange rate flexibility and well-designed recycling of carbon tax revenues; remaining effects could be addressed through international cooperation, such as on a carbon price floor.",
    "Green industrial policies can help the transition but pose design risks; Canada should eschew approaches that distort trade.",
    "Growth (Real GDP, percent change):",
    "Total domestic demand (percent change):",
    "Private consumption (percent change):",
    "Total investment (percent change):",
    "Unemployment rate (average, percent):",
    "CPI inflation (average):",
    "General government revenue:",
    "General government expenditures:",
    "Overall balance:",
    "Gross Debt:",
    "Net debt:",
    "Gross national saving (percent of GDP):",
    "Private saving (percent of GDP):",
    "Personal saving (percent of GDP):",
    "Business saving (percent of GDP):",
    "Gross domestic investment (percent of GDP):",
    "Household Credit Growth (annual average):",
    "Business Credit Growth (annual average):",
    "Balance of Payments:",
    "Nominal GDP (2022): Can$ 2,785 billion (US$ 2,139 billion)",
    "Quota: SDR 11,023.9 million",
    "Population (2022): 39.6 million",
    "GDP per capita (2022): US$ 54,015",
    "Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.",
    "[Canada and the IMF](http://www.imf.org/external/country/CAN/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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