Canada

Canada has a diverse and technologically advanced economy. To keep the economy going after its unprecedented collapse in Q2 2020 due to the Covid-19 shutdowns, the government acted quickly and put aggressive policy responses in place. On the fiscal side, support of approximately 16% of GDP was deployed to help both citizens and businesses. Consumers received direct payments, extended and increased unemployment benefits and wage subsidies. Businesses received partially forgivable loans, emergency rent subsidies and other sector-specific support, which likely kept many afloat. In fact, bankruptcy filings in Q2 2020 fell -28% from Q1 2020 and remain well below pre-pandemic levels. Filings have actually fallen -16% over the past 12 months compared to the previous 12 months, a time period that included the violent downturn of Q2 2020. The monetary policy response was equally impressive as the Bank of Canada (BoC) immediately set the policy rate to 0.25% and started purchasing government securities at an aggressive pace (quantitative easing or QE) to maintain liquidity in the credit markets. It also created several new lending facilities. As a result, credit markets continued to operate normally as they were flooded with liquidity. With both fiscal and monetary policies in place, GDP made a dramatic recovery in Q3 2020 of +42% growth, q/q/ annualized.

The growth outlook remains positive through 2022 for several reasons. Leading indicators including the Ivey PMI, the BoC's business outlook survey, and the Canadian Federation of Independent Business (CFIB) survey all point to future growth and good business conditions. New orders for durable goods are above pre-pandemic levels, providing work in the pipeline. Demand for housing is also strong. All of the jobs lost economy-wide have been regained and more. In addition, the labor force participation rate is back to pre-pandemic levels. Most importantly, fiscal policy pumped 1T CAD of excess savings into consumers’ pockets, which drove a dramatic recovery in personal consumption of 64% q/q annualized in Q3 2020 (personal consumption is 55% of the economy). Moreover there are still excess savings to power personal consumption into 2022 as the savings rate in H2 2021 was 14%, well above the long-term average of 3.3%. Overall, in 2021, the economy will grow at the fastest rate in 20 years, followed by a historically strong rate of over +4% in 2022.

Canada is an open, well-managed economy with quite good overall business conditions. Its fiscal and monetary policies are also well-balanced. Canada ranks 23rd out of 190 countries in the World Bank’s Ease of Doing Business survey. It comes third in terms of the ease of starting a business, a vital element for economic growth. The country ranks 15th in ease of getting credit and ranks 13th in resolving insolvency. Politics are relatively stable as Prime Minister Justin Trudeau was re-elected in 2021 and has held the office since 2015. His Liberal party holds a plurality in the House of Commons but will need cooperation from three of the other large parties to form a coalition government.