Canada: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, December 5, 2025
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- Published: December 5, 2025
Mission overview and context
- IMF mission led by Mr. Ashvin Ahuja visited Ottawa during November 12-20 and held concluding meetings on December 2-4 for the 2025 Article IV consultation.
- The authorities consented to publication; the statement reflects IMF staff views and will inform a staff report for the IMF Executive Board.
I. Recent economic outcomes
- Key findings:
- Canada’s economy has held up better than expected despite a significant external trade shock from U.S. tariff increases and Canada’s more limited, now largely withdrawn, retaliatory measures.
- Tightly integrated North American supply chains were disrupted, raising input costs and weakening output, employment, and investment—most pronounced in trade-exposed sectors.
- Continued CUSMA exemptions and firms’ early adjustments mitigated the shock, but exports fell back and business investment slowed after a brief front-loading of exports and a sharp mid-2025 adjustment.
- Lower commodity prices, softer external demand, slowing immigration, and tariff uncertainty added to the drag, exposing long-standing structural headwinds: weak productivity, slow capital deepening, and lagging innovation.
- Recent policy actions, including targeted support to affected firms and measures in Budget 2025 to encourage investment, have helped cushion the blow.
- Inflation and monetary policy:
- Headline inflation is near 2 percent and core measures are softening.
- With expectations anchored and the economy operating below potential, the decision to lower the policy rate to 2¼ percent is judged appropriate.
- External and fiscal positions:
- The external current account deficit widened as exports to the United States declined; reorientation toward Europe and Asia only partly offset losses.
- Fiscal policy provided measured support through 2025 (middle-income tax relief, repeal of the consumer carbon tax, liquidity, investment, and procurement support) while preserving space to respond to evolving conditions.
II. Outlook and risks
- Near-term outlook:
- Output is expected to remain below potential through 2026 as weak exports, investment, and softer hiring continue to restrain activity.
- Inflation should hover around 2 percent, with softer demand and firms’ cost absorption keeping underlying pressures contained.
- The current account deficit is projected to narrow only gradually as net exports recover gradually and competitiveness gains take time.
- Risks:
- Downside risks: renewed escalation of tariffs, tighter global financial conditions, sharper slowdown in China depressing commodity prices and exports, and elevated household debt exposing consumption to labor-market shocks.
- Upside risks: more constructive U.S. trade backdrop, faster internal market integration, stronger execution of supply-side reforms and priority infrastructure investment.
- Canada’s buffers: positive NIIP and reliable access to external financing.
III. Macroeconomic policy response (findings and recommendations)
- Monetary policy:
- Remain focused on keeping inflation low and stable amid trade uncertainty and a more supportive fiscal stance; current stance is appropriate.
- Further easing could be considered if underlying pressures continue to fade and slack widens, accounting for how fiscal measures shape demand and supply.
- Communication: the Bank’s shift back to publishing a central forecast is welcome; conditional paths under different scenarios can improve market understanding without implying pre-commitment.
- Fiscal policy:
- Continue measured, counter-cyclical, and flexible policy. A modestly expansionary stance is appropriate to cushion softer external demand given fiscal space from low net debt and contained deficits.
- If the trade shock intensifies: allow automatic stabilizers to operate fully, complement with temporary, targeted measures, and provide a transparent path back to anchors once conditions normalize.
- If conditions improve: withdraw support sooner and consolidate while protecting high-quality investment in productivity, infrastructure, and housing.
- Fiscal framework and public investment:
- A clear debt-to-GDP anchor should remain central. Budget 2025 pivots toward higher public investment while maintaining discipline through new deficit and operating-balance anchors.
- Recommendation: elevate the debt ratio from an indicator to a formal anchor, positioning deficit and operating-balance paths as complementary instruments to reinforce accountability and credibility.
- Capital-budgeting framework: design a clearer bridge between the new framework and standard statistical classifications; establish an independent mechanism to validate classifications ex ante and assess compliance ex post.
- Expenditure control: commit to comprehensive expenditure reviews, clear targets, transparent reporting, and timely delivery beginning with the upcoming Main Estimates.
IV. Housing affordability (findings and recommendations)
- Findings:
- Affordability pressures remain severe in several major cities despite tentative cooling; structural supply gaps (limited land, protracted permitting, municipal infrastructure gaps, low construction-sector productivity) underpin challenges.
- Softer labor markets and slower population growth have tempered demand but have not resolved structural supply constraints.
- Supply-side recommendations:
- Continue well-targeted supply push: Build Canada Homes, Housing Accelerator Fund, expanded CMHC financing, Canada Housing Infrastructure Fund.
- In key metros, consider reducing development charges, but prioritize sustained zoning reform, streamlined approvals, and coordinated federal–provincial–municipal action.
- Demand-side recommendations:
- Demand measures should be tightly focused; first-time homebuyer incentives must avoid reigniting price pressures before supply expands.
- Federal foreign-buyer ban and provincial/municipal non-resident taxes are capital-flow management measures under the IMF’s Institutional View.
- Over time, consider replacing these measures with broad-based, non-discriminatory taxes on speculative activity to widen participation, reduce compliance burdens, and channel capital to support new supply.
V. Financial stability (findings and recommendations)
- System resilience and supervisory priorities:
- The 2025 FSAP found banks and major NBFIs resilient to severe liquidity and solvency shocks; crisis-management and supervisory-coordination frameworks are broadly strong.
- Supervision intensification is underway—governance, non-financial risks, and financial-integrity compliance—and monitoring of cross-border exposures and market-based finance has expanded.
- Further efforts needed: strengthen information-sharing arrangements, supervisory autonomy, prudential oversight, and more frequent risk-based onsite inspections—especially for banks and financial-integrity risks.
- Timely enforcement with clearer sanctioning powers would strengthen AML/CFT credibility.
- Risks outside core banking:
- NBFIs are growing with deeper cross-border linkages; liquidity mismatches, leverage, and large U.S. hedge-fund positions in Canadian fixed-income and repo markets could amplify stress.
- Recommendations: strengthen data collection on cross-border activities, expand system-wide stress testing, and deepen federal–provincial coordination.
- The Bank’s contingent liquidity facility for NBFIs material to core funding markets is an important backstop.
- Macroprudential policy:
- Borrower-based tools should continue to contain leverage given elevated household debt and stretched valuations.
- Recommendations: extend the Domestic Stability Buffer to all systemically important DTIs and establish a positive neutral countercyclical capital buffer for others.
- If housing pressures re-emerge, tighten borrower-based limits further, especially for higher-risk segments.
VI. Reinvigorating growth (findings and policy priorities)
- Principal constraint:
- Canada’s productivity shortfall—weak business dynamism, slow capital deepening, and lagging innovation—is the principal long-term growth constraint.
- Entry and scaling have become more difficult; high market concentration in key service industries dampens competitive pressure and slows reallocation.
- Competition and business dynamism:
- Strengthen Competition Bureau’s mandate and sustain resourcing for enforcement and market studies.
- Lower barriers to entry and scaling via simpler licensing, clearer regulatory standards, and reduced burdens on smaller and newer firms.
- Make it easier for firms and consumers to challenge anti-competitive conduct before the Competition Tribunal.
- Routinely screen new regulations for provisions that impede entry, raise costs, or entrench incumbents.
- Budget 2025 and support for innovation:
- Expanded SR&ED support, Major Projects initiatives, and improved predictability will strengthen research infrastructure and accelerate clean energy and critical minerals development.
- Strengthen commercialization pathways, advance a Venture Capital and Growth Catalyst Initiative, and deepen the pool of scientists and engineers.
- Financial sector competition and resilience:
- Legislation on fiat-backed stablecoin issuance under Bank of Canada oversight and rollout of the Consumer-Driven Banking Framework will expand secure data sharing and enable new business models.
- Ease entry and streamline regulation to support greater choice, competition, and capital deployment.
- Pro-growth tax policy:
- The Productivity Super-Deduction and Accelerated Investment Incentive will cut the marginal effective tax rate on new capital by over two percentage points, reinforcing Canada as the most tax-competitive country for new business investment in the G7.
- Sustain a simple, broad-based system, transparently evaluate major tax expenditures, and assess options to strengthen the GST base over time.
- Industrial policy guardrails:
- Support for firms in transition should remain conditional on business viability; sector-specific subsidies, procurement mandates, or exemptions should be narrow, time-bound, and tied to clear market failures.
- Ensure competitive neutrality in eligibility and allocation to avoid incumbent advantage and preserve contestability.
- Internal market integration:
- Removing subnational frictions (differing standards, licensing rules, procurement preferences, labor mobility restrictions) could lift real GDP by up to 7 percent over time, with especially large gains in services.
- Priorities: mutual recognition of credentials, CFTA-aligned sub-national procurement, harmonized inspection and safety certifications.
- Trade strategy:
- Anchor trade strategy in openness and predictability while balancing diversification with deeper North American integration.
- Diversification toward Europe and the Indo-Pacific will strengthen resilience but will take time given continental supply-chain integration.
- The 2026 USMCA review is pivotal for updating rules on critical minerals, digital trade, and clean technology.
Selected economic indicators (from Table 1)
- Nominal GDP (2024): Can$ 2,934 billion (US$ 2,173 billion)
- Quota: SDR 11,023.9 million
- GDP per capita (2024): US$ 54,531
- Population (2024): 41.1 million
- Main exports: Oil and gas, autos and auto parts, gold, lumber, copper.
- Real GDP (percentage change):
- 2022: 4.7
- 2023: 2.0
- 2024: 1.6
- 2025 (Proj.): 1.9
- 2026: 1.7
- Unemployment rate (average) (percent):
- 2022: 5.3
- 2023: 5.4
- 2024: 6.4
- 2025: 6.8
- 2026: 6.5
- 2027: 6.3
- 2028: 6.2
- 2029: 6.1
- 2030: 6.0
- CPI inflation (average): 3.9
- Gross national saving (percent of GDP):
- 2022: 24.6
- 2023: 22.9
- 2024: 22.7
- 2025 (Proj.): 22.0
- 2026: 22.4
- 2027: 22.5
- 2028: 23.0
- 2029: 23.2
- 2030: 23.5
- General government fiscal indicators (NA basis, percent of GDP):
- Revenue: 41.0, 41.6, 42.2, 42.4, 42.1, 41.9, 41.8, 41.7
- Expenditures: 40.4, 44.3, 43.7, 44.6, 44.2, 43.4, 43.2
- Overall balance: -2.1, -1.3, -2.6, -2.3, -1.9, -1.8, -1.6, -1.5
- Gross Debt: 103.7, 106.6, 110.0, 109.1, 109.2, 108.1, 106.5, 104.8, 103.2, 101.4
- Net debt: 13.6, 14.3, 12.3, 12.0, 12.7, 13.2, 13.4, 13.1
- Current account balance (percent of GDP): -0.5, -1.2
- Merchandise Trade balance (percent of GDP): 0.7, -1.1, -0.3
- Export volume (percent change): 3.0, 4.1, -3.2, 1.1
- Terms of trade: -5.9
Source: IMF staff concluding statement of the 2025 Article IV mission to Canada, December 5, 2025.