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Canada's Potential Growth; Another Victim of the Crisis?

  • Marcello M. Estevão
  • Evridiki Tsounta

This study investigates the impact of the current financial crisis on Canada's potential GDP growth. Using a simple accounting framework to decompose trend GDP growth into changes in capital, labor services and total factor productivity, we find a sizeable drop in Canadian potential growth in the short term. The estimated decline of about 1 percentage point originates from a sharply decelerating capital stock accumulation (as investment has dropped steeply) and a rising long-term unemployment rate (which would raise equilibrium unemployment rates). However, over the medium term, we expect Canada's potential GDP growth to gradually rise to around 2 percent, below the pre-crisis growth rate, mostly reflecting the effects of population aging and a secular decline in average working hours.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/13.

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Length: 29
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/13
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