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).

Foreign Trade

Canada is a country open to foreign trade, which represents 67% of its GDP (World Bank, latest data available). Product-wise, Canada’s main exports are energy products (27.2%), consumer goods (11.4%), metal and non-metallic mineral products (11%), motor vehicles and parts (10.4%), forestry products and building and packaging materials (7.5%). The country imports mainly consumer goods (20.6%), motor vehicles and parts (15.2%), electronic and electrical equipment and parts (11.2%), industrial machinery, equipment and parts (11.2%), basic and industrial chemical, plastic and rubber products (8.9% - data Statistics Canada 2022).

The main destinations for Canada’s exports in 2022 were the U.S. (by far the leading partner, accounting for 76.9% of total exports), China (3.7%), the United Kingdom (2.4%), and Japan (2.3%). Similarly, almost half of Canada’s imports had a U.S. origin (49.2%), followed by China (13.5%), Mexico (5.5%), Germany (3%) and Japan (2.3%). In 2022, shipments to the United States reached a record-breaking CAD 595 billion, marking a substantial 24.8% increase. This surge was primarily driven by the upswing in energy exports, which experienced a notable boost in 2022 owing to robust prices. Given the geographical closeness and the comprehensive interconnection of transportation systems (pipelines and railways) handling these products between Canada and the United States, close to 90% of Canadian energy exports were directed towards the U.S. (Statistics Canada). Imports from the United States were up 20% to CAD 471 billion in 2022.

During 2022, the worth of Canada's yearly merchandise exports grew by 22.5%, reaching CAD 779.2 billion, and annual imports saw a 19.9% increase, totalling CAD 757.4 billion. Consequently, Canada's merchandise trade surplus with the world expanded from CAD 4.6 billion in 2021 to 21.8 billion in 2022. More than half of the export increase was driven by the surge in exports of energy products. Trade with the U.S. and Mexico improved consistently, also due to the USMCA (Canada-United States-Mexico Agreement, an updated version of NAFTA). In 2022, both the export and import of services in Canada witnessed growth, propelled by the recovery in international travel. Service exports amounted to CAD 173 billion, reflecting a 16.1% increase from 2021, whereas services imported into Canada reached CAD 189 billion, marking a 25% rise. After being in deficit since 2009, the World Bank estimated the country’s trade surplus at 0.1% of GDP in 2022. Lastly, it has to be noted that in recent years Canada benefited from the effects of the Comprehensive Economic and Trade Agreement (CETA) with the European Union, which entered into force provisionally (it will take full effect once all EU Member States have formally ratified it) eliminating 98% of the tariffs.

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.