(September 5 – 17:30 ET) – The Organisation for Economic Co-operation and Development says Canada should raise interest rates to sustain its current economic expansion.
Today the OECD released its “Economic Survey of Canada 2000”. The report suggests that the Canadian economy may be operating above capacity and should be reined in by further rate action. “With the economy possibly operating above its estimated potential, a further tightening in monetary conditions from mid-year levels would seem to be warranted to avoid the emergence of excess demand and ensuing inflation pressures if the economy’s strong momentum persists.”
The OECD says that Canada appears to have turned the corner after lengthy structural readjustment, however it notes that the government must continue along its current track to sustain this progress. It expects 3% growth this year, after 4.5% last year. Along with further monetary tightening, it notes that, “Priority should be given to continued debt reduction while creating room for desirable changes to the tax system, by maintaining tight control over spending.”
It says the government should resist spending short-term windfalls on large infrastructure projects that will necessitate spending for years when the windfalls may have disappeared. “At the same time, there is scope for advancing the structural policy agenda to enhance economic efficiency and thus provide the wherewithal for an improvement in the standard of living.”
The OECD also chides Canada for its over-exploitation of natural resources, pointing to water management and fishery issues as ones where policymakers have fumbled the ball, allowing long-run unproductive exploitation. It calls for more sustainable resource usage. “Greater use of economic incentives and instruments would help avoid environmental degradation and resource depletion to the detriment of current and future generations, thus enhancing environmentally sustainable growth over the longer run.”
-IE Staff