Canada: Focus on boosting business, jobs and well-being

Canada’s economy is on the road to recovery after the shock from COVID-19, yet risks and uncertainties remain, and some economic sectors and groups remain vulnerable. Support to households and firms should continue until a recovery is well under way, with assistance then focusing on helping viable firms to create jobs, according to a new OECD report.

“This global crisis has been a wake-up call on many fronts. The recovery process is an opportunity to build more resilient economies that are also fairer and greener,” said OECD Director of Country Studies Alvaro Pereira, presenting the Survey at a virtual event hosted by the Canadian Association of Business Economics (CABE) and the Ottawa Economics Association (OEA). “With the right policies, Canada can emerge from this crisis with a stronger, more sustainable and more inclusive economy delivering greater well-being for all.”

The latest OECD Economic Survey of Canada says that contagion and fatalities have been less severe than in many countries and underscores that the policy response to the crisis has been rapid, entailing one of the biggest total support packages of OECD countries. Although the latest round of containment measures has slowed the rebound in activity, the easing of restrictions as vaccination progresses will see the recovery gather momentum. Following a 5.4% contraction in output in 2020, the Survey sees growth of 4.7% for 2021 and 4% in 2022.

Substantial risks and uncertainties surround Canada’s economic outlook. On the upside, the boost from US stimulus could be larger than expected. On the domestic front, it is unclear how fast consumer confidence will rebound – with unemployment likely to remain above pre-crisis levels through 2022 – or how soon households may start to spend the sizable savings that many accumulated during lockdowns. Concerns remain over high household and corporate debt.

Macroeconomic support for aggregate demand should remain substantial while the economy is fragile. Support to people and businesses should evolve as the recovery progresses to ensure assistance focuses on jobs and viable companies. Monetary policy should continue to be geared towards supporting the recovery. At the same time, significant policy support also means the public debt has increased substantially. The report underscores the need for a clear and transparent roadmap in fiscal policy that ensures the public debt burden does not spiral out of control. After the pandemic subsides, it will be necessary to stabilise debt and find ways to accommodate additional spending commitments.

Businesses will also need support to adapt to post-COVID conditions. The Survey suggests insolvency procedures be re-examined to ensure that viable companies running into difficulty have an opportunity to recover. In general, the business climate would benefit from lowering barriers to inter-provincial trade and improving high-speed Internet infrastructure. Stronger incentives for business to become greener are also needed. The report supports the recent federal government proposals for substantial carbon-price increases, announced as part of a strengthened climate plan. It also suggests Canada could expand its use of environmental taxes more generally, which are low relative to other countries’.

The crisis has exacerbated socio-economic inequalities. Job losses have been greatest in low-wage sectors that employ substantial numbers of young people and women. The crisis has also highlighted disadvantages among ethnic minorities and Indigenous groups, who tend to fare poorly in terms of income, life expectancy, housing and health, even in normal times. It has also exposed shortcomings in areas like long-term care for the elderly, health policy and the provision of affordable housing. The recovery should be used to address these vulnerabilities.

Well-being, the subject of in-depth assessment in the report, could be broadly improved if governments made greater use of well-being indicators in policy design and budgeting. In terms of specific issues, well-being would benefit from strengthening social support, boosting childcare provision so women can pursue careers and enhancing the quality of health services with more efficient procedures. Shortages of affordable housing could be addressed though measures that increase supply, including by reducing rent controls and relaxing zoning and land use regulations. For Indigenous peoples, the report recommends enhancing self-determination in particular as key to boosting outcomes.