Madame President, Mr. McAdoo, Dear Friends,
It is a pleasure and an honour for me to be with you today. This event comes at a pivotal moment when Canada, like other countries around the world, is still fighting the virus, while focussing on the recovery from the pandemic.
The economic situation continues to be dominated by COVID-19. Let me start with the global outlook, where I’m pleased to say that we see some good news: the path out of the crisis has become a bit clearer. After contracting at a staggering annualised rate of 12% in the first half of 2020, the global economy has recovered faster than initially expected, with a clear rebound of some 7% annualised in the second half of the year.
Globally, new cases and deaths are showing encouraging signs of responding to the latest round of restrictions. New cases worldwide have more than halved since early January to about 360,000 a day, while global COVID-19 deaths have fallen by about a third since their late-January peak to about 10,000 a day. Progress with vaccination is also improving prospects for decisively containing the pandemic in the second half of this year.
Importantly for Canada, a large part of the improvement in the global economy is coming from the United States, which recorded stronger-than-expected growth in the last quarter of 2020 and which is achieving one of the fastest vaccination rollouts in the world. The new Administration’s planned 1.9 trillion dollar fiscal package would add a substantial additional growth impulse, bringing positive spillovers for Canada.
Nevertheless, we are by no means out of the woods yet. The central scenario of our December Economic Outlook was that global GDP will reach pre-pandemic levels only by the end of 2021. In some countries until 2022. And there are clear downside risks to that scenario.
In particular, problems with vaccine supply and deployment, as well as the spread of more transmissible variants of the virus, could result in further waves of infection and additional headwinds for growth.
Within countries, we are seeing the poorest and most vulnerable disproportionately bearing both the health and the economic burden. And the same dynamic risks are playing out between countries, as poor countries lag in vaccine deployment. This has to be addressed. The virus will not have been eradicated anywhere until it has been eradicated everywhere. The better the deployment of vaccines in all parts of the world, the smaller the risk that new, more dangerous and vaccine-resistant variants emerge.
Canada has weathered the pandemic relatively well. Per capita fatalities to date are below those of 26 other OECD countries – and compare particularly well to the rest of the Americas – while the economy contracted by a little over 5% in 2020, in line with the OECD average.
We currently envisage around 4% GDP growth for Canada this year and next. Risks and uncertainties, however, remain large. These centre around virus developments and how rapidly restrictions can be lifted. It also remains unclear how fast consumer confidence will rebound, and how quickly households may spend the substantial savings many have accumulated during lockdowns.
What can Canada do now to emerge strong from the crisis? Let me offer a few suggestions, some of which are based on the OECD’s forthcoming Economic Survey of Canada, which will be published in March.
Government and central bank support for the Canadian economy has been critical. The fiscal impulse in 2020 is estimated to have been up to 15 percentage points of GDP, one of the largest among OECD economies. While the economy remains fragile, priority should focus on ensuring that fiscal policy helps households and businesses to recover from the crisis. A key challenge is to provide enough support, for long enough, while at the same time facilitating structural shifts created by the pandemic.
As in other economies, we expect the longest-lasting economic impact to be concentrated in hospitality, entertainment and travel. This will be echoed in the job market, with a proportionally larger impact on youth and other workers in low-paid jobs, of which there is a high incidence in these hard-hit sectors. It will therefore be important to focus on hiring and to adapt support for jobseekers and recruiters. Since some sectors are doing well while others suffer, public employment services could play a greater role in helping workers find new employment in a different sector and in assisting employers with their recruitment efforts.
Businesses will also require support to tackle debt burdens and adapt to the post-COVID economy. In this context, Canadian business insolvency procedures should be re-examined to ensure that viable businesses running into difficulty have an opportunity to recover.
The recovery from the crisis provides a unique opportunity to shape a greener, healthier, more inclusive and more digital economy.
The pandemic is hitting young firms hard. This makes investments in low-carbon technologies less likely. Canada should act against this risk by “greening” stimulus and public investment programmes, and by providing long-term policy signals that help sustain investment in low-carbon technologies. Recent federal government proposals for carbon-price increases, announced as part of a strengthened climate plan, are an encouraging sign in this regard.
The pandemic has also underlined the need to strengthen healthcare. Many of Canada’s COVID-19 fatalities have been in long-term care facilities and retirement homes. This has exposed broader problems in the quality of long-term care. The pandemic has also revealed other problems, including the downsides of pharmaceuticals not being included in national public health coverage and Canada’s limited provisions for sick-leave compensation.
As the digital transformation advances, and as countries become more reliant on it, digital policies will also be increasingly important for economic resilience and inclusion. In this respect, widespread, affordable, fast and trustworthy connectivity for all is essential. Canada is a leader in the OECD as regards fixed broadband penetration, but there are persistent gaps between rural and urban households. Additional policy efforts are needed to boost adoption and diffusion of digital tools, especially for SMEs.
Last but not least, hard-wiring well-being into policymaking could make an important contribution to “building back better”. Our forthcoming Economic Survey looks at how measures of well-being can be used in policymaking. Canada’s commitment to developing a well-being framework can help to ensure that the slogan of “building back better” is translated into an actionable set of outcomes and concrete measures.
We are at a pivotal moment. With the right policies, Canada can emerge from this crisis with a stronger, more sustainable and inclusive economy delivering better well-being. The OECD is committed to helping, working with, and for, Canada in designing, developing and delivering better policies for better lives.