Front Matter Page
IMF Country Report No. 14/27
CANADA
2013 ARTICLE IV CONSULTATION
February 2014
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2013 Article IV consultation with Canada, the following documents have been released and are included in this package:
The Staff Report for the 2013 Article IV consultation, prepared by a staff team of the IMF for Executive Board’s consideration on January 29, 2014, following discussions that ended on November 26, 2013, with the officials of Canada on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 15, 2014.
Staff Statement of January 24, 2014 updating information on recent developments.
An Informational Annex prepared by the IMF.
A Press Release summarizing the views of the Executive Board as expressed during its January 29, 2014 consideration of the staff report that concluded the Article IV Consultation with Canada.
A Statement by the Executive Director for Canada.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org Internet: http://www.imf.org
International Monetary Fund
Washington, D.C.
© 2014 International Monetary Fund
Front Matter Page
CANADA
STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION
January 15, 2014
KEY ISSUES
Economic Outlook: Strong private consumption and residential investment helped Canada recover quickly from the last recession but left a legacy of elevated household debt and high house valuations. The transition to more balanced economic growth, with stronger contribution from exports and business investment, has proved elusive, and economic activity remained modest in 2013. Staff expects growth to accelerate above potential in 2014, following a stronger recovery in the United States, but the balance of risks remains on the downside.
Policy Mix: Low inflation, downside risks around the pickup in activity over the near future, and the moderation in the housing sector since mid-2012 suggest the Bank of Canada has more time to wait before starting to normalize interest rates than we anticipated in the 2012 Article IV Consultation Staff Report. With strong post-crisis fiscal consolidation and low levels of net debt, the federal government has room to delay the planned return to a balanced budget in 2015 absent a meaningful pickup in growth. There is limited room for maneuver for those provinces that have made less progress in reducing the fiscal deficits and face long-term fiscal sustainability challenges.
Housing sector, macro-prudential policies, and mortgage insurance: Household leverage remains high, and while house price and construction growth have come off their post-crisis peaks, high valuations and excess supply in a number of housing markets are a source of vulnerability. If maintained, the ongoing moderation in the housing market suggests little need for additional macro-prudential measures but it is important to remain vigilant. Over the longer term, rethinking the role of government-backed mortgage insurance may reduce the government exposure to housing sector risks and lead to a more efficient allocation of resources.
Financial sector policies: While Canada’s financial supervisory and regulatory framework is strong, there is room to strengthen it further along the lines indicated by the 2013 FSAP Update mission.
Policy response to past advice: Since the 2012 Article IV Consultation mission, authorities have continued to take measures to ensure a sustainable development of the housing market, which the mission emphasized as a source of vulnerability last year. Recent progress in moving towards a less fragmented regulation of securities markets is also in line with past staff advice. At the provincial level, efforts to contain health care spending, the establishment of an independent fiscal council in Ontario, and the introduction of a new fiscal framework in Alberta are all consistent with recommendations contained in previous staff reports.
Approved By
Gian Maria Milesi-Ferretti (WHD) and Vivek Arora (SPR)
Discussions took place in Toronto, Calgary, and Ottawa during November 12–26, 2013. The team comprised Roberto Cardarelli (head), Lusine Lusinyan, and Julien Reynaud (all WHD), Ivo Krznar (MCM), and Minsuk Kim (SPR). Messrs. Alejandro Werner and Gian Maria Milesi-Ferretti (both WHD) and Simon Gray (MCM) joined the mission for concluding meetings in Ottawa.
Contents
BACKGROUND: A CHALLENGING TRANSITION
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Outlook and Policies to Boost Growth Potential
B. Monetary Policy: Substantial Policy Stimulus Remains Appropriate
C. Fiscal Policy: Pursuing Growth-Friendly Fiscal Consolidation
D. Policies for the Housing Sector: What Role for Government-Backed Mortgage Insurance?
E. Financial Sector: Outlook, Risks, and Policies
STAFF APPRAISAL
BOXES
1. Canada’s Energy Sector and Outlook
2. Recent Trends in Canada’s Health Care Spending
3. Mortgage Insurance in Canada
4. Canada: 2013 FSAP Update—Key Recommendations
FIGURES
1. Growth Has Accelerated But Remains Unbalanced
2. Monetary Conditions Remain Accommodative
3. A Cooling Housing Sector
4. Fiscal Consolidation is Underway
5. The Financial Sector Remains Resilient
TABLES
1. Risk Assessment Matrix
2. Medium-Term Scenario, 2011–2019
3. General Government Fiscal Indicators, 2011–2019
4. Balance of Payments, 2008–2019
5. Financial Soundness Indicators, 2008–2012
ANNEXES
I. Canada’s Trade and Financial Linkages and Risk Scenarios
II. External Stability Assessment
III. Long-Term Fiscal Sustainability
IV. Public Debt Sustainability Analysis
Front Matter Page
CANADA
STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
January 15, 2014
Prepared By
The Western Hemisphere Department (in consultation with other departments)
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 14/39
FOR IMMEDIATE RELEASE
February 3, 2014
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
