Canada: Fiscal prudence

Following tighter monetary conditions, terms-of-trade losses and weaker exports, activity has recently eased and the economy is estimated to be operating close to its potential level. Looking forward, it is expected to benefit from a pick-up in some external markets while domestic demand decelerates modestly following its recent robust expansion. Inflation pressures are likely to remain limited, as energy prices have fallen from recent peaks and wages may rise only moderately.
In the context of on-target inflation and a modest pick up in activity, the Bank of Canada should keep its policy rate constant so long as no nation-wide labour market pressures come into view. At the same time, fiscal settings at all levels of government need to remain prudent and the federal government should focus on reducing the debt burden before ageing pressures accumulate.
Population (000s), 200532 271
Area (000 sq km)9 976
CurrencyDollar
GDP (Billion USD), 20051 081.8
Life expectancy at birth (Women, Men), 2003 82.4, 77.4
Total labour force (000s), 200517 402
Government typeConfederation
Indicators% change unless otherwise indicated
200620072008
GDP growth2.82.73.1
Household savings ratio1.51.11.3
Consumer price index2.11.52.0
Short-term interest rate (%)4.24.34.3
Unemployment rate (%)6.46.66.5
General government financial balance
(% GDP)
0.90.80.8
Current account balance (% GDP)1.10.10.0
Source: OECD©OECD Observer No. 258/259, December 2006


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