Canada is a good student among industrialized countries, according to the Organization for Economic Co-operation and Development (OECD), but it could do better to increase its productivity and, above all, to reduce its greenhouse gas emissions.
This is the message that Alvaro Pereira, acting chief economist of the OECD, delivered on Monday in Ottawa, with his most recent assessment of the Canadian economy. The Paris-based organization brings together the most industrialized countries and aims to improve public policies to increase prosperity.
Since the previous assessment carried out in the midst of a pandemic, “Canada has done rather well compared to most other countries”, summed up Alvaro Pereira, who was Minister of the Economy in the Portuguese government between 2011 and 2013.
He pointed out that the Canadian economy had regained the ground lost due to the pandemic and that the unemployment rate had come down to a historic low.
Continue the fight against inflation
Like several other countries, Canada must continue to fight against inflation without weakening its economy too much, “a formidable challenge,” said the chief economist of the OECD. The Bank of Canada’s efforts are beginning to bear fruit and must be continued, he said. The Bank of Canada must stand ready to raise its key rate further if necessary to bring inflation back to target.
Despite heightened risks to the global economy, the OECD does not expect a recession in Canada this year or next. The economy is expected to grow by 1.3% this year and 1.5% in 2024. The unemployment rate is expected to rise to 5.7% in 2024.
The Canadian public debt, which has increased during the pandemic, does not worry the OECD either. “Canada fares better than most countries in this regard,” the report notes.
Catch up on productivity
Canada lags significantly behind the United States in productivity and investment. These problems could be reduced by the abolition of trade barriers between provinces, according to the OECD, which gives the example of the dairy sector and the non-recognition of certain qualifications between provinces which limits mobility. Growth gains of up to 4% could come from breaking down internal trade barriers, said Alvaro Pereira, who once lived in British Columbia.
Greater openness to foreign investment in sectors such as telecommunications would also greatly help Canada increase its productivity and standard of living, the OECD believes. “The ongoing revision of the competition law is a welcome measure to strengthen the business climate,” says its report.
Carbon neutrality is still a long way off
In terms of energy transition, Canada still has a lot to do to achieve the carbon neutrality objective, notes the OECD, which considers current efforts insufficient. Its chief economist pointed out that Canada is the country with the worst record, along with Australia, for greenhouse gas (GHG) emissions in relation to gross domestic product (GDP). He stresses that increasing the price of carbon is essential and that the coverage of targeted emissions should be widened. As a major producer of gas and heavy oil, Canada “must take far-reaching steps to replace fossil fuels with clean energy” and “without significantly harming the economy.”
Act on several fronts
Between 1948 and 2021, the average temperature observed in Canada has increased by 1.9℃. This is double the average rate observed on the planet. To act against climate change, Canada can and must also act on transportation, building insulation and the electricity sector, according to the OECD. Its report notes Canada’s lag in the adoption of electric vehicles. To reduce car dependency, road user charges can be considered, the report suggests.
For the electricity sector, the OECD suggests generalizing differentiated pricing over time and investing in interconnections to promote green energies.