Remarks by Angel Gurría, OECD Secretary-General
Montreal, Canada, 11 June 2014 – 13h30
Ladies and Gentlemen,
I would like to thank Gil Rémillard and his team for their hard work in organising the Conference of Montreal, which I have been proud to co-chair. These past three days have been a fitting tribute to his leadership as founding chairman of the International Economic Forum of the Americas 20 years ago.
2014 also marks several other important 20th anniversaries for the Americas: NAFTA, the Plano Real that brought macroeconomic stability to Brazil, and Mexico’s accession to the OECD – blazing a trail for Chile, and soon Colombia and Costa Rica, to join long-standing members Canada and the United States.
Over the past two decades, Canada has witnessed continued economic stability and progress despite the recent crisis that wreaked havoc in most other advanced economies. In fact, Canada has never had a banking crisis and has one of the highest levels of well-being. As we take stock of recent progress and look to the future, I am delighted to present the key messages from the OECD’s latest work on the country:
Sustainability of strong economic performance can be improved
At a time when OECD economies have been struggling to gain traction, Canada has enjoyed a relatively robust recovery. GDP growth in 2014 is expected to be 2.5% and is projected to accelerate to 2.7% in 2015, supported by accommodative monetary policy, the moderation of fiscal tightening, and strong export performance.
We also expect the unemployment rate to continue its decline to 6.6% in 2015, below the OECD average. This is an impressive achievement, given that most other OECD countries – especially in Europe – are still coping with persistently high joblessness.
Canada’s strong performance is a testament to the government’s past policy efforts. But further action will be needed to support stronger, fairer and greener growth over the longer term by improving the sustainability of monetary, fiscal and environmental policy.
As the economy continues to perform strongly, we expect underlying inflation to approach the 2% midpoint of the Bank of Canada’s target range by late 2015. We therefore recommend a gradual withdrawal of monetary accommodation.
As for fiscal policy, budgetary sustainability continues to improve, with federal budget deficits and debt-to-GDP ratios poised to fall over the medium term. But, rising health-care costs pose a major longer-term challenge for the provincial governments. We suggest they continue implementing reforms to slow the rise in health-care costs. Such measures might include increased use of ambulatory care and joint purchases of supplies with other provinces to increase their collective bargaining power.
We are on a collision course with nature. We cannot sustain long-term growth in our economies if we do not protect and preserve our environment. In Canada, the national government projects that by 2020, ‘business as usual’ will see greenhouse gas emissions fall by only 0.4% below 2005 levels, far short of Canada’s Copenhagen pledge of 17%. Intensified exploitation of oil-sands in Alberta is the main reason.
Following the government’s sector-by-sector regulatory approach to reducing emissions, there is an urgent need to finalise regulations for oil and gas. Even better, and ultimately less costly, would be to put a price on all easily monitored emissions, as some provinces are already doing.
More action needed to avert the economic and social risks arising from the housing market
Sustainability is also a growing concern in the housing market, where prices in many metropolitan markets have risen to all-time highs relative to incomes. Residential investment is close to a record share of the Canadian economy.
We do not expect to see a generalised crash in house prices. The quality of mortgage loans remains high, and macro-prudential regulation has significantly slowed credit growth. With interest rates at historic lows, mortgage payments remain affordable for most households.
Risks remain, however. The condominium sector looks overbuilt in certain cities, especially Toronto. And high debt levels may put some households under financial strain as interest rates rise. Given the government’s backing of a large share of mortgage loans, taxpayers are highly exposed in the event of a major shock to housing markets.
The authorities have taken appropriate steps to tighten mortgage insurance regulations, strengthen underwriting practices and reduce government exposure to housing market risks. But they must stand ready to take further action if necessary! To shift more housing risk from taxpayers to the private sector, we recommend that the insurance activities of the Canada Mortgage and Housing Corporation (CMHC) be curtailed and ultimately privatised.
As house prices have increased, affordability has deteriorated, and low-income households have been pushed out to distant suburbs with poor access to public transport, services and jobs. This calls into question the social as well as economic sustainability of housing policy.
There is therefore a need for policies to encourage more compact growth and better integration with public transit planning. Allowing homeowners to rent out secondary suites can also help raise the supply of lower-cost rented housing.This approach has proven successful in Vancouver and should be encouraged more broadly.
‘Go Local’ to address skills shortages and create jobs
Ensuring that people have affordable housing near their places of employment is only part of the story. We also need to make sure they have the skills they need for the jobs they want – and the jobs employers are offering.
There is no generalised skills shortage in Canada, but tensions are emerging in certain sectors and regions. Earnings premiums have increased markedly in engineering, management and health care, pointing to skills shortages there. Job-vacancy rates in skilled trades have also increased sharply, especially in Alberta and Saskatchewan, for example.
To address these localised skill shortages, the OECD’s Review on Local Job Creation underlines the importance of local-level involvement in implementing employment and skills policies to align skills development efforts with employers’ needs. We also highlight the importance of integrating skills and economic development initiatives in order to boost productivity and innovation. These areas have long been identified as among Canada’s greatest challenges.
Here in Quebec, for example, there is a need for greater flexibility in the technical and vocational education system to ensure it is responsive to the local demands and to provide early school leavers and low-skilled young people with second-chance opportunities to re-connect with the labour market.
The shortage of skilled tradespersons could be alleviated by increasing the apprenticeship completion rate, which has been only 50%. The recently announced Canada Apprentice Loan should help by reducing financial hurdles, while intensified harmonisation of the training and certification requirements or provinces’ apprenticeship programmes would improve apprentices’ mobility.
The new Canada Job Grant should also help to overcome skills shortages by channeling public training expenditures more towards meeting labour-market demand. This grant, two thirds of which is to be paid by governments with the remainder shared by employers, will enable employers to participate in decisions about who gets what type of training to ensure its alignment with job opportunities.
Ladies and gentlemen,
The Americas have come a long way since the inception of the crisis. After decades of economic uncertainty, Latin American economies are generally more stable today and their societies more equal. Momentum is finally gathering in the US recovery from its deepest recession since the 1930s. And Canada has weathered the turbulence of the global economy rather well, with strong economic performance and improved well-being for its citizens. Now, the challenge is to underpin the sustainability of this growth model for generations to come, economically, socially and environmentally.
As we look to the future, I hope that the OECD’s Economic Survey of Canada and the OECD’s review of Canada’s Employment and Skills Strategies will contribute to the economic debate in this country, and help the authorities to design, promote and implement ‘better policies for better lives’.