22 

Canada
The Canadian economy will rebound strongly and grow by 6.1% in 2021 and 3.8% in 2022, thanks to reduced
COVID-19 restrictions in the second half of this year and buoyant external demand. These developments
will be echoed in a recovery in the labour market. Nevertheless, output levels will remain below trend and
underlying inflationary pressures will be contained. After increasing again in 2021, the public debt burden
will stabilise in 2022.
Government schemes supporting businesses and households experiencing revenue and income losses
need to remain available until economic recovery is well underway. Monetary policy should remain
accommodative, accompanied by a close watch on housing and corporate debt, with further tapering of
quantitative easing contingent on signs of strengthening conditions. Reforms proposed in the National
Budget 2021 suggest positive advances in social and environmental policy and for the business
environment. The reduction in the fiscal deficit in 2022 is appropriate. However, once the economy is on a
firm footing, a medium-term fiscal strategy to reduce public debt should be considered.

Canada is hit by a third wave of the pandemic, but vaccination is accelerating

A third wave of COVD-19 cases began in March and peaked mid-April. Containment measures have
included a province-wide stay-at-home order in Ontario, localised lockdowns in Quebec and tighter
restrictions in British Colombia and Alberta. Despite the latest surge, Canada remains less severely hit by
the pandemic than the most affected countries. In addition, following a slow start, the rate of vaccination
has increased substantially; as of mid-May, over 45% of the population had received at least one dose of
a COVID-19 vaccine.

Canada 1
Economic activity is continuing to recover Substantial household saving suggests scope
for a large increase in consumer spending
Index Jan. 2020 = 100, s.a. % of disposable income
110 30

100 25

90 20

80 15

70 10
Monthly real GDP¹

60 New orders in manufacturing 5

Employment

50 0 0 0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 2019 2020

1. First estimate for March 2021.

Source: Statistics Canada; and OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/71jwmi

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021
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Canada: Demand, output and prices

2017 2018 2019 2020 2021 2022
Current
Percentage changes, volume
prices CAD
(2012 prices)
Canada billion

GDP at market prices 2 140.6 2.4 1.9 -5.4 6.1 3.8

Private consumption 1 241.1 2.5 1.7 -6.1 5.0 4.6
Government consumption 443.2 2.9 2.0 -1.1 2.8 1.3
Gross fixed capital formation 485.8 1.8 0.3 -3.6 6.1 3.2
Final domestic demand 2 170.1 2.5 1.4 -4.5 4.7 3.6
Stockbuilding1 17.5 -0.2 0.2 -1.6 0.8 0.0
Total domestic demand 2 187.6 2.3 1.6 -6.1 5.5 3.6
Exports of goods and services 673.3 3.7 1.3 -9.8 11.7 4.2
Imports of goods and services 720.3 3.4 0.4 -11.3 9.9 3.6
Net exports1 - 46.9 0.0 0.3 0.6 0.3 0.2
Memorandum items
GDP deflator _ 1.8 1.7 0.8 3.6 1.5
Consumer price index _ 2.2 2.0 0.7 2.0 1.4
Core consumer price index2 _ 1.9 2.1 1.1 1.1 1.3
Unemployment rate (% of labour force) _ 5.9 5.7 9.5 7.9 6.8
Household saving ratio, net (% of disposable income) _ 0.8 1.4 14.7 11.4 6.5
General government financial balance (% of GDP) _ 0.3 0.5 -10.7 -6.0 -1.5
General government gross debt (% of GDP) _ 92.8 92.7 127.4 130.5 130.3
Current account balance (% of GDP) _ -2.3 -2.1 -1.9 0.4 0.6

1. Contributions to changes in real GDP, actual amount in the first column.

2. Consumer price index excluding food and energy.
Source: OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/ip3mqw

Canada 2
Output is heading towards its pre-pandemic trend The unemployment rate will continue to fall
Index 2019Q4 = 100, s.a. Real GDP % of labour force
110 14
Pre-crisis growth path¹
Current growth path

105 12

100 10

95 8

90 6

85 0 0 4
2019 2020 2021 2022 2019 2020 2021 2022

1. The pre-crisis growth path is based on the November 2019 OECD Economic Outlook projection, with linear extrapolation for 2022 based on
trend growth in 2021.
Source: OECD Economic Outlook 106 and 109 databases.

StatLink 2 https://stat.link/vr6i4s

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021
24 

Economic activity has been more resilient than expected

Output growth has been holding up well given the renewed virus outbreaks. Real GDP increased by 0.4%
and 0.9% (month-on-month) in February and March, respectively. The faster pace of vaccination,
significant fiscal stimulus, higher prices for oil and other commodity exports and the prospects of increased
demand arising from the US fiscal package in March are boosting the recovery. The household saving rate
is declining from the high level reached in the early months of the crisis, when middle and high-income
households in particular accumulated saving well in excess of levels implied by pre-crisis behaviour. The
saving rate decline is consistent with gathering confidence and adaptation to restrictions. Business
sentiment has also become more positive according to the Bank of Canada’s Business Outlook Survey.
The energy price recovery has driven increases in headline consumer price inflation in recent months.
Headline inflation increased by 3.4% in April (year-on-year), while excluding energy, the consumer price
index increased by 1.6%. House price growth continues apace; the Teranet-National Bank National
Composite house-price index for March was up 10.8% year-on-year.

The federal government has committed to further support for households and
businesses

Monetary and fiscal policy support remains substantial. The monetary policy stance remains
accommodative notwithstanding the reduction in the scale of the quantitative easing programme
announced in April. The Bank of Canada’s policy rate remains at 0.25%. Similar to elsewhere, bond yields
on long-term government securities have increased in recent months. The federal government’s National
Budget for 2021, published in April, commits to keep support for households and businesses on tap. There
are prolongations to a number of support schemes, including the Canada Emergency Wage Subsidy and
the Canada Recovery Benefit. New supports include an additional wage-bill subsidy, the Canada Recovery
Hiring Program. The Budget estimates the federal fiscal deficit at 6.4% of GDP for the fiscal year 2021-22,
a level consistent with keeping pandemic support on tap. With only modest reductions in the public-debt
burden projected over the four years to 2025-26, a medium-term fiscal strategy should aim to restore fiscal
headroom after the pandemic subsides.
Economic growth will accelerate in the second half of this year
The projections envisage a slowing of growth in the second quarter of this year. This will be followed by a
pick-up as vaccination progresses and containment measures are lifted when the latest wave of the
pandemic subsides. Consumer spending will increase further as restrictions are lifted and labour market
conditions continue to improve. Exports will be boosted by additional demand arising from the US fiscal
package. Headline consumer price inflation is expected to diminish in the near term as the impact of
energy-price increases wears off. It will then rise gradually as the economy grows and spare capacity
diminishes. Echoing the federal government’s budget, the general government fiscal deficit will decline
substantially in 2021 and 2022 as tax revenues recover and need for household and business support
declines. A rise in the monetary policy interest rate is assumed in the final quarter of 2022.
Despite the improving economic outlook, risks remain elevated. As elsewhere, the emergence of highly
contagious virus variants requiring renewed restrictions is a risk factor for the pace of economic recovery.
On the other hand, faster reduction of case numbers, and brighter labour market prospects, could bring
stronger-than-expected growth in household consumption and more rapid reduction in the saving rate.
While the US fiscal package will undoubtedly boost demand for Canadian exports, the scale of the effect
is uncertain. Vulnerabilities in the corporate bond market remain a concern. Recent housing price growth
will make homeownership still less attainable for many households, while increased mortgage borrowing
could compound financial market vulnerabilities in the event of future shocks.

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Policy needs to nurture business recovery and strengthen well-being

The federal government’s budget indicates a welcome commitment to keep some of the pandemic support
measures for households and businesses on tap for the duration of the crisis. It also aims to make progress
on longer-term socio-economic issues that have been flagged in OECD Economic Surveys. Areas of policy
requiring particular improvement include access to childcare, programmes for indigenous peoples and
access to prescription drugs. In environmental policy, it remains important to follow through with the plan
to accelerate the increases in carbon pricing and taxation through to 2030. The budget makes welcome
commitments to improve the environment for business, including efforts to further lower Canada’s domestic
trade barriers. In addition, there is scope to improve insolvency processes; attention to this could help
business sector recovery.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021