Macroeconomic policies for the end of a boom cycle

Macroeconomic policies for the end of a boom cycleCanada’s economy has greatly benefited from the commodity boom of the past few years, though the resulting exchange-rate appreciation has put strains on the central regions that have a more balanced economic base. But the economy has proven flexible and has entered the current phase of global economic turmoil from an enviable position. Despite an expected slowdown in 2008, the economy is expected to rebound in 2009 and emerge from the credit crisis relatively unscathed. The baseline projection calls for growth well above recession territory – even if below potential rates – for both 2008 and 2009. Looking further ahead, there are significant risks to the Canadian economy from worldwide adjustments to the large global current account imbalances that have been building for some time, particularly in the United States. Nevertheless, weathering short- and medium-term macroeconomic tempests should not detract policymakers from longer-term structural issues identified in past Surveys. Recent experience in credit markets harbours lessons that the central bank and financial-market regulators can use to strengthen financial-system efficiency, stability and transparency. And the coming wave of baby-boomer retirements calls for fiscal policymakers to improve expenditure controls, accelerate debt reimbursement and put more of current resource revenues aside to help prepare for the fiscal implications of demographic change.