Economic Survey of Canada 2006: Managing the challenges ahead

 

Contents | Executive SummaryHow to obtain this publication |  Additional Information

The following OECD assessment and recommendations summarise Chapter 1 of the Economic Survey of Canada 2006 published on 26 June 2006.

Contents                                                                                                                           

Economic performance has been strong

The Canadian economy has continued to deliver excellent results in nearly all respects. Output and employment growth have been robust, while the unemployment rate has fallen to its lowest level since 1974. Inflation remains comfortably under control, and the general government and current account balances are in surplus. Altogether, Canadians enjoy one of the highest living standards in the OECD, a result that reflects the pay-off from good macroeconomic management and the structural reforms put in place. But despite all these positive dimensions, hourly productivity growth in the business sector has been weak in recent years, although it showed a sharp pick-up in 2005.

GDP per capita
Per cent

1. The adjusted GDP per capita is corrected for the terms of trade and is measured using the price of consumption.
Source:  Department of Finance Canada calculations.

Resource-rich provinces have surged ahead, but growth
has also been reasonable elsewhere 

Soaring commodity prices have led to booming activity in those provinces with abundant oil and gas resources, while the resulting exchange rate appreciation has had a damping affect in others, although even the economies of the slowest-growing provinces continue to expand at around 2% per year. Monetary policy settings appropriately reflect the average conditions across the country, but high demand in Western provinces has led to localised upward pressure on wages and prices. Nevertheless, significant economic adjustments are taking place in response to these large commodity-driven shifts in relative prices. To date, the economy has shown a remarkable ability to cope, through both increased inter-regional labour mobility and restructuring within the manufacturing sector where the least efficient firms have exited and less competitive industries have shrunk.

Key challenges for all levels of government are to raise productivity growth
and maintain sustainable fiscal and social policies

Recent trends are likely to continue: mineral prices (especially oil) are expected to remain high, and oil sands production is projected to expand dramatically in coming years to reach close to 3.5 million barrels per day by 2015, more than offsetting declining conventional oil production. This will involve significant regional and national economic adjustments as well as windfall gains for public finances in resource-rich provinces. At the same time, Canada will soon see the baby-boom generation passing into retirement and the proportion of the population of working-age start to diminish. These demographic pressures present two key challenges. 

  • The first challenge is to raise productivity growth, which will become the key driver of higher living standards over the longer term. Both federal and provincial governments need to play a significant role here, using the policy levers that each is best placed to apply while ensuring appropriate collaboration and co ordination in their efforts. Faster productivity growth in all parts of the country would also help to counter balance some of the regional effects of energy developments.
  • The second challenge involves ensuring that fiscal and social policies stay on a sustainable path across all levels of government, especially in the face of continued growth in health care costs. While windfall revenue gains linked to mineral-related taxes and royalties provide extra financing room to meet ageing challenges, they are also likely to lead to widening inter-provincial disparities in public finances.

Another task will be for the federal government to design its “Made-in-Canada” climate change programme so that as yet undefined reductions in greenhouse gas emissions are achieved at the lowest possible economic cost.

  

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assesment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic Survey of Canada 2006 is available from:

 

Additional information                                                                                                  

For further information please contat the Canada Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Deborah Roseveare and Annabelle Mourougane under the supervision of Peter Jarrett.

 

 

 

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