Canada's economy has been resilient, with growth picking up over 2024, but trade uncertainty and tariffs have worsened the economic outlook. Fiscal and monetary policy easing may be required if the economic situation significantly deteriorates, provided tariff-related inflationary pressures remain under control. Structural policy reforms should focus on tackling the challenges of weak productivity growth, housing affordability and climate adaptation, according to a new OECD report.
The latest OECD Economic Survey of Canada projects GDP growth declining from 1.5% in 2024 to 1.0% in 2025 and 1.1% in 2026, due to trade tensions with the United States. Uncertainty remains high regarding future tariff levels and their effects on the Canadian economy.
"Canada's policy framework for macroeconomic stability remains strong, with robust public finances and a well-capitalised banking sector," OECD Chief Economist Álvaro Pereira said, presenting the Survey in Ottawa. "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. To boost long-term growth prospects in a sustainable way, more needs to be done to raise productivity and tackle climate-related risks."
Canada's productivity performance has lagged best-performing OECD countries for many years and could be compounded further by current trade tensions. Reducing internal trade barriers and improving mutual recognition of qualifications across provinces to lower internal barriers to labour mobility can help strengthen productivity. Canada would also benefit from reducing barriers on foreign investment to reinvigorate weak investment activity. Finally, streamlining research and development tax incentives for both smaller and larger companies and stepping up direct support would help boost business research and development spending.
Growth would also benefit from higher labour market participation by women, who remain under-represented in key technical disciplines and in leadership positions, while gender gaps in working hours and wages remain significant. Efforts to boost the availability of affordable childcare should continue, alongside additional action to strengthen policies for parental leave, equal pay, anti-discrimination and flexible work.
Housing affordability has deteriorated, with strong increases in both house prices and rents. Further reforming zoning laws and expediting the permitting process would increase the supply of housing.
Climate-related risks from rising temperatures and extreme weather events are increasingly impacting the economy and communities. Policies should focus on moving from a disaster recovery approach to proactive risk reduction and investment in climate-resilient infrastructure. Restricting land development in high-risk flood and fire zones should be paired with encouraging broader insurance coverage.
