Economic and Political Overview

flag Canada Canada: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

Following the unprecedented global crisis prompted by the spread of the COVID-19 pandemic - which led to the largest economic contraction since 1945 - the Canadian economy rebounded in 2021 (+4.5%) and continued growing in 2022 (+3.4% - IMF). Nevertheless, economic activity slowed in 2023: after a robust performance in the first quarter (with real GDP expanding by 0.6%), output growth came to a standstill in the second quarter, showing virtually no growth. For the year as a whole, the IMF estimated growth at 1.3%. Despite rising crude oil prices, Canadian commodity export prices were still below the mid-2022 peaks. The terms-of-trade decline created a negative income shock, contributing to subdued demand. Furthermore, dry weather conditions lead to a reduction in yields for key farm outputs, particularly wheat. Real GDP growth is expected to increase marginally to 1.6% in 2024, reflecting a deceleration in domestic demand amid elevated borrowing costs and declining exports, before picking up to 1.9% in 2025 benefiting from improved global conditions that bolster export performance.


The fiscal policy continues to be restrictive, reducing the burden of gross general government public debt, currently hovering around 106.4% of GDP (IMF). Anticipated decreases in nominal GDP and business profits are expected to contribute to a continued decline in revenue growth. Measures at the federal and provincial levels to alleviate household living cost pressures have appropriately scaled back: the overall government budget deficit decreased to 0.8% in 2023, from 1.4% one year earlier (IMF), and is anticipated to hover around 0.5% over the forecast horizon. The debt-to-GDP ratio should also follow a downward trend in 2024 (103.3%) and 2025 (100.6%). The federal government is actively implementing structural reforms outlined in its annual budget. These reforms encompass backing the green transition, expanding affordable childcare, addressing the rising costs related to an ageing population, and implementing measures to reduce housing expenses. The current monetary policy remains contractionary, curbing demand and aiding in re-establishing inflation expectations. The policy rate is expected to stay elevated at 5% until mid-2024 to ensure a return of price growth within the Bank of Canada's target range of 1% to 3%. However, adjustments to the rate may be necessary in response to evolving macroeconomic conditions to mitigate inflationary pressures. The overall inflation rate was estimated at 3.6% in 2023 by the IMF, with an expected decrease to 2.4% and 1.9% this year and the next, respectively.

Continued labour market slack is expected to result in further upticks in the unemployment rate (5.5% in 2023) until mid-2024 (with a 6.4% rate expected for the year as a whole - IMF). Wage growth will moderate, staying approximately in sync with consumer-price inflation, which is anticipated to reach the target by the third quarter of the following year. Although Canadians enjoy a high per capita GDP (estimated at USD 59,813 in 2023 - IMF), 8.1% of the population lives in poverty (data 2021 Census of Population).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 2,137.942,117.812,238.572,364.552,474.33
GDP (Constant Prices, Annual % Change) 3.41.31.62.41.8
GDP per Capita (USD) 55,03753,24755,52857,89959,838
General Government Balance (in % of GDP) -1.4-0.8-0.4-0.5-0.5
General Government Gross Debt (in % of GDP) 107.4106.4103.3100.698.6
Inflation Rate (%) n/a3.62.41.91.9
Unemployment Rate (% of the Labour Force) 5.35.56.36.06.0
Current Account (billions USD) -7.00-20.94-21.39-28.72-35.02
Current Account (in % of GDP) -0.3-1.0-1.0-1.2-1.4

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

Main Sectors of Industry

The agricultural sector represents 1.7% of Canada's GDP and employs only 1% of the active population (World Bank, latest data available). However, the agricultural system and the food processing industry provide 1 in 8 jobs and account for over CAD 100 billion of the country’s GDP and more than CAD 60 billion in exports. Canada is one of the largest exporters of agricultural products in the world - particularly of wheat - and produces around 10% of the world's GMO harvests. Fishing is another important sector. Canada is also one of the leading producers of minerals, especially nickel, zinc and uranium. Moreover, the country is rich in gas and has the 4th largest reserves of oil in the world (being the 4th oil producer in 2023), whose production is concentrated in the western provinces, especially Alberta. According to the latest figures from Agriculture Canada, for the 2023‑24 crop year, the production of Canada's main field crops is projected to experience a 13% year-over-year decline, dropping 8.3% below the average of the previous five years. This decrease is primarily attributed to extensive drought conditions across the Prairies. The forecast for exports anticipates a 15.1% year-over-year reduction, reflecting the lower production. However, despite this decline, exports are expected to maintain a relatively robust performance, supported by strong global demand.

The industrial sector contributes 24.1% of the GDP and employs 19% of the labour force. Canada has six strong primary industry sectors: renewable energies (mainly wind, the country is a net exporter of energy); the forestry sector, hydrogen and fuel cells, mines, metals and minerals, fishing, oil and gas. According to data from the World Bank, manufacturing accounts for around 9% of the country’s GDP. The latest data from Statistics Canada show that in 2022 the revenue of goods manufactured increased by 17.1% from 2021. Total revenue was estimated at CAD 923.7 billion, while revenue from goods manufactured reached CAD 866.3 billion and total expenses grew to CAD 827.4 billion.

The service sector dominates the Canadian economy: it represents 67.7% of the country's GDP and employs over 79% of the active population (the largest employer being the retail sector - which employs about 12% of the country’s workforce alone - and the business-related services sector). The education and health sectors are also pivotal for the country’s economy. The most dynamic sectors in recent years have been telecommunications, tourism, internet and aerospace engineering. Tourism is the fifth-largest sector in the country’s economy, it provides 1 in 10 jobs and is responsible for 225,000 small and medium-sized businesses across Canada.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.3 19.3 79.4
Value Added (in % of GDP) 1.7 24.1 67.7
Value Added (Annual % Change) 11.7 2.7 3.7

Source: World Bank, Latest data available.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
77,8666666666667/100
World Rank:
9
Regional Rank:
1



 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.42/10
World Rank:
3/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
Governor General: Mary Simon (since 26 July 2021)
Prime Minister: Justin Trudeau (since 4 November 2015) – Liberal Party
King Charles III is officially the Chief of State of Canada (since 8 September 2022).
Next Election Dates
House of Commons: October 2025
Current Political Context

Federal elections were held in 2021, the second in two years. The Liberal Party of incumbent Prime Ministry Justin Trudeau maintained their status as the largest party in the House of Commons obtaining 32.6% of the votes and 160 seats, followed by the Conservative Party (119 seats), the Bloc Québécois (32 seats) and the New Democratic Party (25 seats). Justin Trudeau was able to develop a minority government and went on to form the first gender-balanced cabinet in Canadian history. Meanwhile, relations with the United States improved under the Biden administration, although concerns remain on energy and trade policies.
A "confidence and support agreement" was established with the New Democratic Party (NDP), potentially extending the tenure of Justin Trudeau's government until October 2025. According to the terms, the NDP, led by Jagmeet Singh, will back crucial government initiatives, and in reciprocation, the government will promote NDP priorities. Nevertheless, the agreement is non-binding, rendering it somewhat fragile. Tensions persist between the federal and provincial levels of government. Notably, disagreements have arisen between the federal government and the Conservative administrations in Alberta and Saskatchewan as these provinces contend that federal climate policies adversely affect the oil and gas industry.

Main Political Parties
Historically, the Canadian two-party plus system has been dominated by the centre-left Liberal Party and the centre-right Conservative Party. Since the 1980s or so Canada’s dominant third-place party has been the further-left NDP. There is also a consistently fourth-place party known as the Bloc Quebecois which is devoted to Quebec separatism.

- Liberal Party of Canada (LPC): centrist party, the oldest active federal political party in Canada
- Conservative Party of Canada (CPC): centre-right to right-wing; colloquially known as the 'Tories'
- New Democratic Party (NDP): centre-left, socialist
- Bloc Québécois: centre-left, social-democratic
- Green Party of Canada (GPC): centre-left, ecologist party

Type of State
Constitutional monarchy, parliamentary democracy and federation.
Executive Power
King Charles III is the Head of State, whose role is largely cerimonial. He appoints Canada's Governor General for a five year term. The Governor General - who was a largely ceremonial role - appoints the Prime Minister as well as the Cabinet (however, cabinet members are chosen by the Prime Minister). The Prime Minister is the head of the government and holds the executive power. The leader of the majority party or coalition in the House of Commons is automatically chosen to be Prime Minister. The Prime Minister and his Cabinet stay in power as long as they have the support of the majority in the House of Commons.
Legislative Power
The legislative power in Canada is bicameral. The federal parliament made up of: the Senate (upper house), whose 105 members are appointed by the Governor General on the advice of the Prime Minister; and the House of Commons (lower house), whose 338 members are elected by universal suffrage, with each member representing a single electoral district (also known as a "riding"). The Governor General calls a general election when the Prime Minister advises him to do so. Most legislative practices are derived from the British Parliament.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
14/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For information on the economic recovery scheme put in place by the Canadian government to address the impact of the COVID-19 pandemic on the Canadian economy, please visit the Canadian government’s webpage Canada’s COVID-19 Economic Response Plan.
For a general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and  macroeconomic) undertaken by the Canadian government,  please consult the section dedicated to Canada in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: February 2024