Canada’s economy remained steady in 2024, but global trade tensions are clouding the country’s outlook, according to a new report from the Organization for Economic Co-operation and Development (OECD).
The OECD predicts a cooling economy in its most recent Economic Survey of Canada, predicting GDP growth to drop from 1.5% in 2024 to 1% in 2025, and then gradually increase to 1.1% in 2026. The projected dip is being attributed largely to trade-related tensions with the U.S.
“Canada’s policy framework for macroeconomic stability remains strong, with robust public finances and a well-capitalized banking sector,” said Alvaro Pereira, the OECD’s chief economist, during the report’s release on Monday in Ottawa. “To boost long-term growth prospects sustainably, more needs to be done to raise productivity and tackle climate-related risks.”
Be prepared
The OECD called on the Bank of Canada to maintain a stable monetary policy, but to be prepared to act swiftly if inflation spikes or GDP falters.
On fiscal policy, the report suggests that federal and provincial governments should let automatic stabilizers — such as higher unemployment benefits and lower tax revenue — absorb the initial economic slowdown.
In terms of productivity, the OECD points to a list of obstacles. Structural inefficiencies — like internal trade barriers and inconsistent credential recognition across provinces — continue to hold back growth. The report recommends reducing these barriers and promoting foreign investment, alongside revamping the system of research and development (R&D) incentives to encourage more innovation.
Although Canada offers tax credits for R&D, business investment in this area remains disappointing, the OECD said. It recommends equalizing tax credit access between small and large firms and putting more focus on direct funding, especially in fast-growing fields such as AI.
Housing is another pressure point. According to the survey, Canadians are finding it increasingly difficult to obtain affordable housing due to rising costs and rents. The OECD recommends greater zoning changes to permit more medium-density housing, quicker approval times for new construction and measures like the Canada Rental Protection Fund to maintain the supply of reasonably priced rental properties.
Rising immigration and an ongoing shortage of skilled tradespeople are compounding housing issues. The OECD suggests aligning immigration levels with housing availability and expanding programs that train workers in construction and related sectors.
The report also draws attention to elevated household debt and risks in the mortgage market. Regulators, it says, should keep a close eye on lending practices and look for ways to limit exposure to high-risk mortgages.
“There is room to improve the efficiency of the tax system and further reduce risks from the mortgage market, where high debt weighs on household finances and financial stability,” said Pereira.