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2008 OECD Economic Surveys: Canada 2008

image of OECD Economic Surveys: Canada 2008

OECD's periodic survey of Canada's economy.  After two chapters assessing the current economic situation and policy responses to new terms of trade, ageing, and climate change, additional articles are presented on tax reform, long-term sustainability in the energy sector, and modernising Canada's agricultural policies.

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Adapting to new terms of trade, ageing and climate change

A long period of record high growth in Canada appears to have now ended with the global financial market dislocation and cyclical slowdown. A positive terms-of-trade shock (well over $100 oil and exchange-rate parity with the US dollar) has meanwhile boosted incomes and energy-sector prospects but also dragged down export values, especially in manufacturing. A key macroeconomic policy challenge will be to balance upside risks to inflation in the medium term and downside risks to growth in the short run, while ensuring that symptoms of Dutch disease do not develop. Realising Canada’s full potential in the face of imminent demographic ageing requires later retirements and overcoming a persisting productivity gap vis-à-vis the United States via structural policies. Looking further into the future, Canadian and world welfare will depend on curtailing present levels of greenhouse gas emissions. The highly emitting energy sector, in particular, is not sustainable on current development patterns. Outdated policies in the agricultural sector also distort Canada’s natural comparative advantage in food while denying domestic market access for poorer food-producing nations. Given its many advantages, there is no reason Canada cannot successfully deal with the challenges posed by new terms of trade, ageing and climate change.

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