Press Release No. 26/012

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation for Canada.[1]

Canada is adjusting to a significant external trade shock amid heightened global uncertainty. Higher U.S. tariffs have disrupted tightly integrated North American supply chains and weighed on exports, investment, and confidence. The impact has been less severe than initially feared, reflecting USMCA exemptions, monetary easing, and targeted domestic support, but the shock has reinforced longstanding structural challenges.

Economic activity is expected to remain subdued in the near term, with output below potential as trade adjustment and uncertainty continue to restrain exports and investment, compounded by slower immigration. Inflation is projected to remain close to the 2 percent target, supported by softer demand and firms’ absorption of higher costs. The current account deficit is expected to narrow only gradually as trade uncertainty recedes and competitiveness gains take hold.

Risks to the outlook have become more balanced but remain tilted to the downside. Renewed tariff escalation or prolonged trade uncertainty could further weigh on investment and confidence, while tighter global financial conditions or a sharper slowdown in China would pose additional headwinds. Elevated household leverage represents a domestic vulnerability, although Canada’s strong policy frameworks and fundamentals—including a positive net international investment position and stable external financing—provide important buffers.

The financial system is resilient to severe solvency and liquidity shocks, consistent with FSAP findings, though pockets of vulnerability persist, including commercial real estate exposures—particularly among pension funds and insurers—and the expanding role of nonbank financial intermediation.

Over the medium term, strengthening productivity will be critical to improving economic performance and external balance. Weak productivity growth remains a key challenge, underscoring the need for reforms that support investment, competition, and innovation.

 

Executive Board Assessment[2]

Executive Directors welcomed the Canadian economy’s resilience to large trade shocks and ongoing uncertainty, highlighting the authorities’ prudent policy response and the country’s strong fundamentals. Directors noted that recent trade shocks have accentuated longstanding weaknesses in productivity and competitiveness, while the near-term outlook is subdued and risks are tilted to the downside. Against this backdrop, they underscored that the priority is to prudently manage the near-term adjustment while advancing structural reforms to lift productivity, competitiveness, and resilience. Directors also called for nimble policy making and contingency planning given the uncertain external environment.

Directors supported the targeted, temporary fiscal support to cushion the adjustment stemming from the trade shock, along with ongoing efforts to reorient spending toward public investment and strengthen the medium-term fiscal framework. They welcomed the new capital budgeting framework and the comprehensive expenditure reviews, noting the need for gradual fiscal consolidation over the medium term. Directors encouraged steps to improve the transparency and accountability of public investment and to clarify the debt-to-GDP ratio as a formal fiscal anchor, supported by deficit and operating-balance paths as operational guides.

Directors generally agreed that the current monetary policy stance is appropriate and welcomed the central bank’s data-dependent approach to maintaining inflation at target, with flexibility to recalibrate as conditions evolve. They concurred that a continued clear and effective communication strategy is essential to maintain confidence, bolster transparency, and support orderly adjustment.

Directors welcomed that the financial system remains resilient to solvency and liquidity shocks, supported by strong buffers and robust supervision, consistent with the findings of the 2025 Financial System Stability Assessment. They underscored the need for continued vigilance amid household leverage, commercial real estate vulnerabilities, and a growing nonbank financial sector. To further bolster resilience, Directors recommended strengthening data collection, stress testing, and supervisory coordination as well as reinforcing the effectiveness of AML/CFT frameworks. They welcomed ongoing efforts to improve housing affordability and underscored the importance of carefully calibrating demand-side measures and of expanding housing supply through coordinated federal–provincial–municipal action.

Directors stressed that boosting productivity and external competitiveness remains Canada’s central medium-term challenge. They highlighted the importance of revitalizing business dynamism, strengthening innovation incentives, and deepening internal market integration by decisively advancing the implementation of recent reforms at the provincial level. Noting Canada's vulnerability to climate change, a number of Directors emphasized the importance of maintaining climate-related goals.

Directors agreed that Canada’s trade strategy should remain anchored in openness and predictability, seeking diversification and new opportunities while also deepening continental integration, including through the 2026 USMCA review. They noted that while industrial policy could help support adjustment and resilience, it needs to be tightly targeted and governed by strong guardrails.

 

 

Table. Canada: Selected Economic Indicators, 2022–31

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.                                     Proj.     2022 2023 2024 2025 2026 2027 2028 2029 2030 2031                                                   Output and Demand                       Real GDP 4.7 2.0 2.0 1.6 1.6 1.9 1.7 1.7 1.7 1.7   Total domestic demand 5.6 0.3 2.0 2.3 1.5 1.9 1.6 1.7 1.6 1.6   Private consumption 6.7 2.3 2.2 2.5 1.4 2.3 2.1 2.4 2.0 2.0   Total investment 5.5 -5.8 -0.1 0.9 1.9 2.3 2.2 2.2 2.2 2.2   Net exports, contribution to growth -0.9 1.7 0.1 -0.7 0.0 -0.1 0.1 0.1 0.1 0.1   Output gap 1/ 0.8 0.0 -0.7 -0.9 -0.8 -0.6 -0.4 -0.2 0.0 0.0                           Unemployment and Inflation                       Unemployment rate (average) 2/ 5.3 5.4 6.4 6.8 6.5 6.3 6.2 6.1 6.0 6.0   CPI inflation (average) 6.8 3.9 2.4 2.0 2.1 2.1 2.0 2.0 2.0 2.0                           Saving and Investment 3/                       Gross national saving 24.6 22.9 22.7 22.0 22.4 22.5 22.7 23.0 23.2 23.5   General government 3.8 2.9 0.8 1.5 0.2 0.3 0.6 0.6 0.8 0.8   Private 20.8 20.0 21.9 20.5 22.2 22.2 22.2 22.4 22.5 22.7   Personal 4.0 4.4 9.9 8.7 8.5 8.9 8.1 7.8 6.9 5.8   Business 16.8 15.6 11.9 11.8 13.7 13.3 14.0 14.5 15.6 16.9   Gross domestic investment 25.0 23.6 23.2 23.2 23.1 23.2 23.3 23.3 23.4 23.5                           General Government Fiscal Indicators 2/ (NA basis)               Revenue 41.0 41.6 42.2 42.4 42.1 41.9 41.8 41.7 41.7 41.8   Expenditures 40.4 41.8 44.3 43.7 44.7 44.2 43.8 43.5 43.2 43.2   Overall balance 0.6 -0.2 -2.1 -1.3 -2.6 -2.3 -1.9 -1.8 -1.6 -1.4   Structural balance 1/ 0.1 -0.2 -0.8 -0.7 -2.1 -1.9 -1.7 -1.7 -1.5 -1.4   Gross Debt 103.5 105.0 110.0 110.6 110.9 109.8 108.0 106.3 104.3 102.4   Net debt 13.4 12.8 10.9 9.7 10.3 10.9 11.1 11.2 11.2 11.0                           Money and Credit (Annual average)                       Household Credit Growth 9.9 5.0 3.6 3.5 3.5 3.5 3.5 3.4 3.4 3.4   Business Credit Growth 6.4 3.4 3.6 3.5 3.5 3.5 3.5 3.4 3.4 3.4                           Balance of Payments                       Current account balance 3/ -0.5 -0.7 -0.5 -1.2 -0.8 -0.7 -0.5 -0.4 -0.2 0.0   Merchandise Trade balance 3/ 0.7 0.0 -0.2 -1.1 -0.7 -0.6 -0.5 -0.5 -0.3 -0.3   Export volume (percent change) 3.0 4.1 0.3 -3.2 1.1 2.0 2.3 2.3 2.4 2.4   Import volume (percent change) 6.1 -1.2 0.1 -0.3 1.2 2.6 2.4 2.4 2.4 2.4   Terms of trade 4.1 -5.9 -1.1 -0.4 0.0 0.0 0.0 0.0 0.0 0.0                                               1/ Percent of potential GDP.                     2/ Percent.                     3/ Percent of GDP.

 

 

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.