Archived - Canada Is Leading the Way
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Canada had the strongest fiscal position in the G-7 at the onset of the global recession, which allowed Canada to respond quickly and forcefully to stimulate the economy and support Canadians through the worst of the recession (Chart 1). Indeed, the policy response set out in Canada's Economic Action Plan remains one of the largest stimulus packages among G-7 countries (Chart 2).
Canada's Solid Economic Performance
Canada weathered the global recession better than most other industrialized countries. Indeed, the decline in real gross domestic product (GDP) in Canada during the global recession was the smallest of all G-7 countries (Chart 3). Canada's ability to weather the global recession reflected not only the massive policy actions taken in Canada but also a number of core economic strengths, notably the stability of our financial sector, strong corporate and household balance sheets, the ongoing impact of previously announced tax cuts for businesses and households, and the solid fiscal positions of all orders of government.
The economic recovery in Canada began in the third quarter of 2009, and has been led by a solid recovery in domestic demand—the sum of consumer, business and government expenditures. Since the start of 2009 domestic demand in Canada has grown significantly faster than in any other G-7 country (Chart 4). The rebound of Canadian domestic demand has been broad-based.
Canada suffered a shallower recession and a speedier rebound than G-7 peers like the U.S. and the U.K., where growth levels are still low and recovery uncertain.
— The Wall Street Journal
June 2, 2010
As a result of Canada's strong economic performance both during the recession and over the recovery to date, output has now virtually returned to pre-recession levels. Canada is the only G-7 country to have virtually recouped the output lost during the recession (Chart 5).
Canada's solid economic recovery has also supported a recovery in Canada's labour market. Since July 2009, employment is up by nearly 310,000, reflecting broad-based job growth in all regions of the country. As a result, three quarters of the jobs lost during the recession have been recouped. In comparison, the decline in employment in the U.S. was proportionately more than four times as large as in Canada and fewer jobs have been recouped to date (Chart 6). Across the G-7, Canada is the only country to have recorded a year-over-year increase in employment in March 2010 (Chart 7). With this increase in employment, the unemployment rate has fallen to 8.1 per cent from a peak of 8.7 per cent. Nevertheless, the level of unemployment in Canada remains too high.
Stability of Canada's Financial Sector
Canada's banks and other financial institutions were better capitalized and less leveraged than their international peers going into the global recession, in part reflecting a strong financial regulatory and supervisory framework (Chart 8). The World Economic Forum has ranked Canada's banking system as the soundest in the world for two consecutive years. As well, the IMF has commented that Canada's financial sector has shown "remarkable stability amid the global turbulence, thanks in good part to strong supervision and regulation."
Strong Corporate and Household Balance Sheets
Balance sheets in the non-financial business sector in Canada were also very strong leading up to the global recession, and have emerged from the downturn stronger than in many other advanced economies. In particular, corporate debt-to-equity ratios were very low in Canada going into the recession, and have increased less than in other countries since the start of the financial crisis. This has reflected a lower reliance on debt in recent years, as well as a smaller decline in Canadian equity values over the recession than elsewhere (Chart 9).
Household financial positions are also strong, after having improved steadily in the years prior to the recession. Household net worth (measured in relation to disposable income) stood at an all-time high prior to the recession. Moreover, reflecting the prudence of Canadian banks, households and regulators, Canada entered the global recession without the type of major housing market imbalances that were present in many other advanced economies. As a result, house prices and household net worth declined significantly less in Canada than in many other countries during the recession. Indeed, household net worth is over six times the value of disposable income, significantly higher than in the U.S. (Chart 10).
than in the U.S.
Strengthening Canada's Tax Advantage
The Government is strengthening Canada's business tax advantage to support investment, job creation and growth in all sectors of the economy. This year Canada will have an overall tax rate on new business investment that is the lowest in the G-7. Canada's tax advantage will grow as business tax rates continue to fall through 2012 (Chart 11). By 2012, Canada will also have the lowest statutory corporate income tax rate in the G-7.
Strong Fiscal Position
Canada was able to respond quickly and forcefully to the recession with a large and comprehensive package of stimulus measures, without putting at risk the country's long-term fiscal position.
Canada's fiscal position is recognized as one of the strongest in the world. Canada was the only G-7 country to consistently post surpluses in the years prior to the global recession. In 2007, Canada posted a total government surplus of 1.6 per cent of GDP, compared to a G-7 average deficit of 2.1 per cent of GDP. This year, the IMF projects that Canada will record a total government deficit of 5.2 per cent of GDP, about half of the average for G-7 countries. Going forward, the IMF expects Canada to be the only G-7 country to return to surplus by 2015. In contrast, the average total government deficit in the G-7 is expected to be 5.4 per cent of GDP in 2015 (Chart 12).
Sustained surpluses in the years prior to the recession were used to reduce the total government net debt burden. In 2007, Canada's net debt-to-GDP ratio stood at 23.1 per cent, less than half of the G-7 average of 53.0 per cent. Looking forward, the IMF projects that in 2015 Canada's net debt-to-GDP ratio will be 30.7 per cent, compared to 85.5 per cent in the U.S. (Chart 13). Moreover, Canada is projected to be the only G-7 country to put its net debt-to-GDP ratio back on a downward path during this period, thereby further strengthening our fiscal advantage.
Canada is benefiting from its past good policies, in spite of the fact that Canada was severely hit through trade...from south of the border.
— Pier Carlo Padoan, OECD Chief Economist
April 8, 2010
Canada Expected to Outpace Other G-7 Countries
Owing to Canada's strong economic fundamentals, both the IMF and the OECD expect Canada to have the strongest economic growth in the G-7 over the next two years (Chart 14).
 IMF, Canada: 2009 Article IV Consultation, May 2009.