major macro economic indicators
|2020||2021||2022 (e)||2023 (p)|
|GDP growth (%)||-5.1||5.0||3.5||1.1|
|Inflation (yearly average, %)||0.7||3.4||6.9||3.8|
|Budget balance (% GDP)*||-11.3||-4.8||-1.4||-1.1|
|Current account balance (% GDP)||-2.2||-0.3||-0.2||-0.7|
|Public debt (% GDP)||126.8||116.5||113.2||109.2|
(e): Estimate (f): Forecast * *Federal government. Fiscal year from April 1st to March 31st. 2023 data: 2023/24
- Abundant energy, mineral and agricultural resources
- 5th-largest oil and gas producer in the world
- Strong, well-capitalised and well-supervised banking sector
- Immediate proximity to the US market
- Trade deals: USMCA with the US and Mexico, CETA with the EU
- Excellent business environment
- Lowest net debt of the G7 (30% of GDP)
- Dependent on the US economy and energy prices
- Loss of competitiveness in manufacturing companies due to low labour productivity
- Insufficient R&D expenditure
- High household debt, mainly mortgage debt
- Deteriorating housing affordability
- Energy exports weakened by inadequate supply pipelines to the coasts and the United States, and by the US’ own resources
High interest rates threaten activity
In 2022, growth remained strong, driven by the positive impact of easing health restrictions and high commodity prices, especially energy. However, the effects of inflation and rapidly rising interest rates began to be felt towards the end of the year and are expected to further dampen activity in 2023. They will affect the contribution of private consumption (about 55% of GDP). On that score, Canadian households will be particularly vulnerable to rising borrowing costs given their very high debt levels. However, the savings accumulated during the pandemic (about 12% of GDP), a durably robust job market at the turn of the year (5.0% jobless rate in December 2022), expected moderation in inflation during the first half of the year, and population growth associated with strong immigration are likely to keep their spending afloat. Residential investment, which has already suffered from rising interest rates in 2022, is expected to continue to contract. Construction is likely to be affected in 2023. Conversely, despite the adverse rate environment, high commodity prices, the energy transition, and infrastructure projects should keep private investment resilient. Energy and agricultural commodities (wheat) will continue to support export growth, but the sluggish US business outlook should weigh on manufactured goods exports. With provincial and federal governments ensuring that fiscal policy does not conflict with tight monetary policy, the contribution of government spending will be very limited. After raising its key interest rate by 425 basis points between March 2022 and January 2023, the Bank of Canada is expected to keep it at 4.5% in 2023. Energy, food and import prices are expected to fall, which should help contain inflationary pressures.
Prudent management of public finances
The budget deficit narrowed sharply in 2022 as a result of surging commodity prices, the recovery in activity and the reduction of pandemic-related support spending. The budget deficit is expected to remain low in 2023-24 as the federal government has indicated it intends to exercise fiscal prudence. Amid the inflationary context, measures to support purchasing power are primarily targeted at the lowest-income households. Government spending is also expected to be aimed at stimulating investment in clean technologies, such as the creation of a specific tax credit and the proposed launch of a Growth Fund. While debt servicing is expected to increase, it will remain below 2% of GDP. On the tax front, a new 2% tax on share buybacks is expected to be introduced in the 2023-24 budget and will contribute to revenue growth. However, revenues are expected to grow more slowly as activity slows. While the general government gross debt ratio is very high, the net debt ratio (47% of GDP) - especially after deducting the assets held by the Canada Pension Plan and the Quebec Pension Plan - remains lower than any of its G7 peers. Moreover, it is expected to continue trending downward.
Current account widens slightly
After narrowing sharply in the last two years in the wake of a trade balance that turned into a surplus, the current account deficit is expected to widen somewhat in 2023. Moderation in commodity prices, particularly energy prices, is expected to dent the balance of goods. In an environment of higher interest rates, the income account deficit is also expected to weaken. Spending by Canadian travelers abroad will again contribute to a deficit in the services account. The deficit in the transfer account will remain more insignificant. Non-residents' purchases of Canadian financial assets should more than finance the deficit. Foreign debt - largely private at about 80% - is still high, representing about 125% of GDP, but should stabilise.
Trudeau government's stability bolstered by deal with NDP
Justin Trudeau (Liberal Party), who has been Prime Minister since November 2015, held on to his position following the early federal election of September 2021. The election resulted in a minority government (158 seats out of 338) with the balance of power broadly unchanged from the 2019 election. While no minority government has served a full term, a "confidence and support agreement" signed with the New Democratic Party (NDP, 25 seats) in March 2022 could ensure that Justin Trudeau's government continues until October 2025. Under the agreement, the NDP, led by Jagmeet Singh, will support key government initiatives and, in return, the government will advance NDP priorities, starting with dental and pharmacare programmes. The agreement is non-binding and therefore fragile and disagreements, particularly on social policy, could jeopardise it. The Prime Minister would be reluctant to call an early election as his party's popularity has eroded in favour of the Conservative Party on back of high inflation. The main opposition party with 117 seats is led by Pierre Poilièvre, who was elected leader in September 2022 to try to consolidate this advantage until the next general election. Sources of friction between the federal and provincial levels of government remain strong. The federal government has, for example, clashed with the Conservative governments of Alberta and Saskatchewan, which argue that federal climate policies have a negative impact on the oil and gas industry. There are also regular disagreements with the French-speaking province of Quebec.
Relations with the US, which were tense under Donald Trump, appear to be calmer under the Biden administration. Differences remain, however, on energy and trade policies.
Last updated: April 2023
A single law governs bills of exchange, promissory notes and cheques throughout Canada; however this law is frequently interpreted according to common law precedents in the nine provinces or according to the Civil Code in Quebec. As such, sellers are well advised to accept such payment methods unless where long-term commercial relations, based on mutual trust, have been established with buyers.
Centralised accounts, which greatly simplify the settlement process by centralising settlement procedures between locally based buyers and sellers, are also used within Canada.
SWIFT bank transfers are the most commonly used payment method for international transactions. The majority of Canadian banks are connected to the SWIFT network, offering a rapid, reliable and cost-effective means of payment, notwithstanding the fact that payment is dependent upon the client’s good faith insofar as only the issuer takes the decision to order payment.
The Large Value Transfer System (LVTS) –introduced by the Canadian Payments Association in February 1999 – is a real time electronic fund transfer system that facilitates electronic transfers of Canadian dollars countrywide and can also handle the Canadian portion of international operations.
The letter of credit (L/C) is also frequently used.
Canada’s Constitution Act of 1867, amended in April 1982, divides judicial authority between the federal and provincial Governments. Therefore, each province is responsible for administering justice, organizing provincial courts and enacting the civil procedure rules applicable in its territory. Though the names of courts vary between provinces, the same legal system applies throughout the country, bar Quebec.
Within each province, provincial courts hear most disputes of all kinds concerning small claims, and superior courts hear large claims – for example, the Quebec superior court hears civil and commercial disputes exceeding CAD 70,000 and jury trials of criminal cases. Canadian superior courts comprise two distinct divisions: a court of first instance and a court of appeal.
At federal level, the Supreme Court of Canada, in Ottawa, and only with “leave” of the Court itself (leave is granted if the case raises an important question of law), hears appeals against decisions handed down by the provincial appeal courts, or by the Canadian Federal Court (stating in appeal division), which has special jurisdiction in matters concerning maritime law, immigration, customs and excise, intellectual property, disputes between provinces, and so on.
The collection process begins with the issuance of a final notice, or “seven day letter”, reminding the debtor of his obligation to pay together with any contractually agreed interest penalties.
Ordinary legal action – even if the vocabulary used to describe it may vary within the country – proceeds in three phases.
Firstly, the “writ of summons” whereby the plaintiff files his claim against the defendant with the court, then the “examination for discovery”, which outlines the claim against the defendant and takes into account the evidence to be submitted by each party to the court and, finally, the “trial proper” during which the judge hears the adverse parties and their respective witnesses, who are subject to examination and cross-examination by their respective legal counsels, to clarify the facts of the case before making a ruling.
Enforcement of a Legal Decision
In most cases, except when the judge decides otherwise, each party is required to bear the full cost of the fees of his own attorney whatever the outcome of the proceedings. As for court costs, the rule stipulates that the winning party may demand payment by the losing party based on a statement of expenses duly approved by the court clerk.
The change precisely concerns institution of a standard “originating petition” (requête introductive d’instance), with the payment of judicial costs joined, introducing a 180-day time limit by which the proceedings must be scheduled for “investigation and hearings” (pour enquête et audition), delivery of a judgement on the content within a timeframe of six months after the case was heard and encouragement of the parties to submit to a conciliation stage during legal proceedings, with the judge presiding over an “amicable settlement conference” (conférence de règlement à l’amiable).
The two primary pieces of insolvency related legislation in Canada are the Companies' Creditors Arrangement Act (the CCAA) and the Bankruptcy and Insolvency Act (the BIA). The BIA is the principal federal legislation in Canada applicable to bankruptcies and insolvencies. It governs both voluntary and involuntary bankruptcy liquidations as well as debtor reorganisations. The CCAA is specialized companion legislation designed to assist larger corporations to reorganise their affairs through a debtor-in-possession process.