Economic and Fiscal Overview

Canada’s economy has demonstrated remarkable resilience, effectively navigating several global challenges, including the pandemic, geopolitical tensions, and global inflation. The country’s rapid recovery from the largest recession since the Great Depression has positioned it strongly for future growth despite the ongoing global uncertainties. Here’s an overview of Canada’s recent economic developments and fiscal outlook:

1. Recent Economic Developments

A Historically Strong Economic Recovery:
Canada’s recovery from the COVID-19 pandemic has been notably faster and stronger than past recessions and those experienced by other global economies. The resilience of the economy reflects strategic fiscal management and the adaptation to external challenges.

Inflation Within Target Range:
For all of 2024, inflation has been kept within the Bank of Canada's target range of 1-3%. The government’s responsible fiscal management has played a key role in maintaining price stability across most sectors, with wage growth outpacing inflation.

Wage Growth and Improved Living Standards:
Wages have increased by 5% in real terms since before the pandemic, contributing to improved living standards. Key initiatives like $10-a-day childcare are enhancing workforce participation and supporting economic growth.

Job Creation and Economic Growth:
Canada has created 330,000 jobs in the past year, contributing to economic growth. Real GDP growth has averaged nearly 2% annually in 2024, and the Bank of Canada is leading G7 countries in reducing interest rates to support further growth.

Accelerating Private Capital Inflows:
Canada’s stock market is outperforming its global peers, and the government is actively investing in initiatives to boost productivity, housing affordability, and business investment. This includes policies aimed at fostering clean technology manufacturing and enhancing the country’s critical minerals supply chains.

2. Canadian Economic Outlook

Looking ahead, Canada's economy is well-positioned for growth, with strong supply-side drivers such as increased labor force participation, especially among women, and improving business investment. The IMF projects Canada will lead the G7 in GDP growth in 2025.

Key focus areas include:

• Support for Workforce Success: Initiatives like free dental care, prescription medications, and $10-a-day childcare are enhancing social services, making it easier for Canadians to succeed in the workforce.

• AI and Innovation: With nearly $5 billion in investments aimed at fostering scientific breakthroughs and technological advancements, Canada is securing its place as a leader in AI and innovation.

• Geopolitical Risks: The government is strengthening trade relationships and ensuring that supply chains are resilient to global risks. Canada is also addressing the U.S. threat of tariffs while maintaining a competitive business environment.

• Industrial Transition: The government is investing $94 billion in economic investment tax credits to support clean technology manufacturing and power generation in Canada.

3. Fiscal Outlook

Canada’s fiscal health remains strong, with responsible management ensuring the country’s ability to face new challenges. The government’s economic strategy focuses on:

• Maintaining Fiscal Sustainability: Canada’s net debt-to-GDP ratio is projected to remain low at 14.4% in 2024, well below the G7 average. This fiscal prudence supports the country’s AAA credit rating, which enables borrowing at the lowest possible cost.

• Creating Jobs and Boosting Productivity: The government is focused on improving productivity to sustain wage growth, with investments aimed at increasing business investment and workforce participation.

• Economic Growth and Innovation: The Canadian economy is projected to grow at 1.7% in 2025, supported by strong domestic fundamentals, such as tax incentives for business investment and innovation.

Overall, Canada’s economic plan is positioning the country for continued growth while navigating global challenges. The government's prudent fiscal management and strategic investments are fundamental to driving long-term success and ensuring Canada remains competitive in the global economy.