Amid a deteriorating economic outlook, Canada needs to take action to boost productivity — such as dismantling internal trade barriers and boosting R&D spending — while also tackling its housing affordability and climate challenges, according to the Organization for Economic Cooperation and Development (OECD).
In its latest economic survey for Canada, the OECD indicated that with increasingly-erratic U.S. trade policy, GDP growth is expected to slow to just 1% this year and 1.1% next year, down from 1.5% in 2024.
“Uncertainty remains high regarding future tariff levels and their effects on the Canadian economy,” it said.
Against this backdrop, if economic conditions degrade significantly, “fiscal and monetary policy easing may be required,” it said.
Looking longer term, the OECD said that policy reforms should focus on Canada’s weak productivity growth, housing affordability and climate risk.
In particular, the trade disruption with the U.S. raises the urgency of dealing with long-standing concerns about weak productivity, it suggested.
Reduce barriers; eliminate obstacles
To that end, the report recommended reducing internal trade barriers and eliminating obstacles to labour mobility to combat existing intra-provincial frictions — while also taking action to enhance business investment, such as boosting direct support for research and development spending.
At the same time, it recommended that policymakers facilitate higher labour market participation by women.
“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,” it said.
Another core challenge is housing affordability, which has been strained by rising home prices and rents.
Among other things, the OECD identified the need to increase the supply of housing.
“Further reforming zoning laws and expediting the permitting process would increase the supply of housing,” it said.
Additionally, the report said that combatting climate-related risks should also be a policy priority, as these risks increasingly impact the economy.
“Policies should focus on moving from a disaster recovery approach to proactive risk reduction and investment in climate-resilient infrastructure,” it said. “Restricting land development in high-risk flood and fire zones should be paired with encouraging broader insurance coverage.”
The banking sector remains well capitalized, the OECD said, although, “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 Álvaro Pereira, chief economist of the OECD, in a release.