Canada receives a mixed report from the OECD

Canada receives a mixed report from the OECD

According to the Organization for Economic Co-operation and Development (OECD), Canada is a good student among developed countries, but could increase its productivity and, importantly, reduce its greenhouse gas emissions.

Posted at 6:00 am

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That’s the message Alvaro Pereira, acting chief economist at the OECD, delivered on Monday in Ottawa with his latest assessment of Canada’s economy. The Paris-based organization brings together the most industrialized countries and aims to improve public policies to increase prosperity.

Since the last assessment amid a pandemic, “Canada has done pretty well compared to most other countries,” said Alvaro Pereira, who was economy minister in the Portuguese government between 2011 and 2013.

He pointed out that Canada’s economy has regained ground lost to the pandemic and the unemployment rate has fallen to an all-time low.

Continue the fight against inflation

Like several other countries, Canada must continue to fight inflation without weakening its economy too much, “a daunting challenge,” said the OECD’s chief economist. The Bank of Canada’s efforts are beginning to bear fruit and must continue, he said. The Bank of Canada must be prepared to raise interest rates further if necessary in order to bring inflation back to the target level.

Despite increased risks for the global economy, the OECD does not expect a recession in Canada this year or next. The economy is expected to grow by 1.3% this year and 1.5% in 2024. The unemployment rate is expected to rise to 5.7% in 2024.

The OECD is not worried about Canada’s public debt, which has increased during the pandemic. “Canada is doing better than most other countries in this regard,” the report notes.

catch up productivity

Canada lags far behind the United States in productivity and investment. These problems could be reduced, according to the OECD, by removing inter-provincial trade barriers, citing the example of the dairy sector, and by not recognizing certain inter-provincial qualifications that limit mobility. Growth gains of up to 4% could be achieved by breaking down internal trade barriers, said Alvaro Pereira, who once lived in British Columbia.

Greater openness to foreign investment in sectors like telecoms would also greatly help Canada increase its productivity and living standards, the OECD believes. “The ongoing review of competition law is a welcome step in strengthening the business climate,” the report said.

There is still a long way to go before climate neutrality

Regarding the energy transition, Canada still has a long way to go to reach the goal of carbon neutrality, notes the OECD, which finds current efforts insufficient. Its chief economist pointed out that Canada is the country with the worst record in terms of greenhouse gas (GHG) emissions as a percentage of gross domestic product (GDP) alongside Australia. He stresses that raising the price of carbon is essential and that coverage of targeted emissions should be expanded. As a major producer of gas and heavy oil, Canada must “take far-reaching steps to replace fossil fuels with clean energy” “without significantly harming the economy.”

Act on multiple fronts

Between 1948 and 2021, the average temperature observed in Canada increased by 1.9℃. This is twice the average rate observed on the planet. According to the OECD, Canada can and must also take action in the areas of transport, building insulation and the electricity sector to tackle climate change. The report notes Canada’s lag in EV adoption. To reduce car dependency, road pricing could be considered, the report suggests.

For the electricity sector, the OECD proposes generalizing differentiated prices over time and investing in interconnectors to promote green energy.