Economic outlook, analysis and forecasts

Canada - Economic forecast summary (June 2016)


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Economic growth is projected to strengthen in 2016 and reach 2.2% in 2017. As the contraction in the resource sector slows, activity in the rest of the economy is projected to gain traction. Non-energy exports should continue to benefit from the earlier depreciation and strengthening export market growth. Consumer price inflation is projected to rise to around 2% as the effect of falling gasoline prices fades and excess capacity is gradually eliminated.

The moderately expansionary policy stance in the 2016 federal budget will help the economy return to full employment. In the medium term however, in light of provinces’ unfavourable debt dynamics, the government should adopt ambitious medium-term debt and budget balance objectives to ensure that general government debt remains sustainable. Gradual increases in policy interest rates are assumed from late 2016 to stabilise inflation at around 2%. Macro-prudential measures should be tightened further and targeted regionally to reduce financial-stability risks from high household debt and house prices.

Reducing barriers to foreign direct investment in telecommunications and broadcasting and air transportation would boost productivity and reduce quality-adjusted prices. Such measures would also disproportionately benefit lower- and middle-income households. Boosting inter-provincial competition by liberalising electricity generation and distribution and reducing barriers to internal trade would have similar effects. Replacing the tax preference for small companies by targeted measures for small businesses having difficulty obtaining finance would also boost productivity.

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