Canada: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, January 30, 2015
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Bibliographic details
- Published: January 30, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498396325.002
Key issues — Economic outlook
- The Canadian economy "has expanded at a solid pace since 2013," but "rebalancing of growth away from household consumption and residential investment remains incomplete, owing mainly to weak business investment."
- Growth momentum "is expected to continue alongside a strengthening U.S. recovery despite substantially lower oil prices."
- Risks to the outlook are "modestly tilted to the downside" given:
- "sluggish global growth,"
- "effects unfolding from sharply lower oil prices,"
- "housing market risks."
- "Key domestic vulnerabilities in housing markets and the household sector remain elevated but contained from a financial stability perspective."
Policies for balanced and sustained recovery
- Overall objective: "facilitate rebalancing to generate a broader and more durable recovery, reduce domestic vulnerabilities, and further strengthen financial system resilience."
- Macro policies:
- "Monetary policy can remain accommodative for now" because:
- "inflation expectations are well-anchored,"
- "stronger business investment is still a missing link,"
- "risks to an export-led recovery are to the downside,"
- "housing markets are expected to cool as U.S. interest rates rise and with lower oil prices."
- Fiscal policy guidance:
- "Fiscal consolidation should proceed in light of longer-term challenges at the provincial level,"
- "but federal authorities should consider adopting a neutral stance going forward, using available fiscal resources for targeted measures to support growth."
- Structural policy guidance:
- "Structural policies to improve productivity in the economy would increasingly need to complement this policy mix."
- Housing sector and financial sector policies:
- "Further macro-prudential policy action may be needed to guard against risks to financial stability if household balance sheet vulnerabilities resume rising."
- Continue "reforms to limit government exposure to housing markets and encourage appropriate risk retention by the private sector."
- Strengthen coordination and frameworks:
- "Improving complex coordination across federal and provincial authorities in supervision and stress-testing of depository institutions"
- "strengthening macro-prudential and crisis management frameworks will reinforce the resilience of Canada’s financial system."
Policy response to past advice
- Since "the 2013 Article IV Consultation mission," authorities have:
- "taken some further steps to limit taxpayer exposure to the housing sector and strengthen mortgage insurance underwriting practices."
- Begun work on FSAP recommendations to:
- "enhance stress testing,"
- "address data gaps,"
- move "towards establishing a cooperative capital markets system."
- "Intensified their efforts towards addressing interprovincial trade barriers and export diversification."
Source: Canada: Staff Report for the 2014 Article IV Consultation