Canada: 2023 Article IV Consultation-Press Release; and Staff Report

The 2023 Article IV Consultation discusses that the Canadian economy is decelerating, accompanied by a sharp decline in headline inflation. However, as in other similar countries, core inflation has been stickier, and short-term expectations remain elevated against the background of still-tight labor markets. Meanwhile, the financial system appears broadly resilient, despite global banking stresses and ongoing mortgage resets at higher interest rates, and the housing market is rebounding again, partly reflecting the substantial increase in immigration. With the world moving from one crisis to the next, risks to a highly open economy like Canada are substantial and compound domestic vulnerabilities related to inflation expectations, the housing market, and household advantage. The outlook thus remains uncertain, and shocks could push the economy into a mild recession. Looking further ahead, the government is positioning Canada as a reliable supplier of critical minerals and energy and has had some success in attracting some major new green investments. Key long-term challenges relate to further strengthening the investment climate, boosting productivity growth, and implementing Canada’s ambitious policies to achieve its climate mitigation targets.