The Canadian economy needs reforms to bolster productivity and transition to a low-carbon economy, says a new report from the Organization for Economic Cooperation and Development (OECD).
In its latest survey of Canada, the Paris-based group forecast GDP growth of 1.3% this year and 1.5% in 2024 amid slowing demand and higher interest rates.
“Like many economies, Canada faces the difficult challenge of tackling inflation without undermining economic activity,” said Alvaro Pereira, acting chief economist at the OECD, in a release.
“Fiscal and monetary policy need to work in tandem to ease inflation pressures while governments shore up public finances. Meanwhile more needs to be done to strengthen productivity through removing barriers to internal trade and competition.”
On the monetary policy front, the OECD said it expects restrictive policy to drive inflation down toward the Bank of Canada’s 2% target by the end of 2024. The BoC’s next rate announcement is on Wednesday.
To bolster the economy’s potential, the report recommends reducing restrictions on foreign ownership and reforming competition law to address tech-related barriers to entry.
Additionally, it said that “more can be done to lower inter-provincial trade barriers and to ease regulatory burdens on businesses.”
At the same time, the OECD stressed that Canada faces challenges to meet its emission reduction goals, given the heavy reliance on the energy sector and the high emission intensity of Canada’s economy thanks to its geography and weather.
“The government has put in place multiple policies to decarbonize the economy, but achieving its climate targets and reaching net zero by 2050 will require deep energy savings and widespread action to replace fossil fuels with clean energy,” it said.
“Federal and sub-national governments will need to work together to ensure complementary climate policies create strong incentives for greener production, without a large toll on the economy,” the report added.