Economic growth is projected to recover in 2016, and reach 2.3% in 2017. The drag from falling energy investment should fade away by early 2016, while non-energy exports lead the subsequent pick-up, with business investment following. As economic slack is taken up through 2016, inflation should increase to above the 2% midpoint of the Bank of Canada’s inflation target range in 2017.
Increases in policy rates are assumed in late 2016 and to be gradual thereafter. Further macro-prudential measures should be taken to contain financial stability risks from high household debt and house prices. Reductions in the general government budget deficit are set to decline, reflecting the incoming federal government’s pledge to run small deficits to finance infrastructure spending.
Reducing barriers to foreign direct investment in telecommunications, broadcasting and airlines, and continued efforts to increase the quantity and productivity of R&D would raise long-term growth prospects. To make growth more inclusive, targeted needs-based financial assistance to disadvantaged groups for tertiary education should be increased, the aid application process made more transparent and public health coverage of essential pharmaceuticals expanded.
Canada is not on track to meet its target of reducing greenhouse gas emissions by 30% relative to the 2005 level by 2030. The federal government has indicated its intention to pursue a collaborative approach with provinces and territories to achieve Canada’s climate change objectives. The four largest provinces have adopted, or are in the process of adopting, price instruments – cap and trade or a carbon tax. To reduce abatement costs, the other provinces and territories should follow suit. However, emissions reductions would be less costly if provinces coordinated or the federal government took the lead on a national greenhouse gas abatement policy.