Executive summary

Canada’s inherent domestic strengths and timely policy actions ensured limited financial and economic damage from the global recession. The authorities responded aggressively to the onset of the crisis to keep credit flowing, which it did, particularly to households, making both consumer spending and housing investment remarkably resilient throughout the recession. However, the counterpart was a rapid rise in household debt. The initial rebound in activity has been very strong, helped by fiscal stimulus, but an increasing number of households may become vulnerable as interest rates increase. With the expected withdrawal of monetary stimulus, the tighter financial conditions resulting from the much stronger currency, the waning of fiscal policy measures and a likely further slowdown in household credit growth, the pace of recovery will ease somewhat in coming quarters. Once excess capacity has been worked off, the economy’s trend growth rate is projected to be much lower over the medium term than it has been in the past as changing demographics slow the growth of the working-age population. Structural reforms to boost potential output growth should therefore remain at the top of the policy agenda.

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