In 2016, activity suffered with the worsening state of the oil and gas sector, further exacerbated by the huge fires in the province of Alberta in May 2016. Growth is however expected to quicken in 2017, driven by domestic demand and non-oil and gas exports. The weakness in oil prices caused a refocusing on other sectors, taking advantage of the depreciation in the Canadian dollar and increased demand in its export markets (namely the United States). Investments into these sectors will therefore be especially strong boosted by very low interest rates, thus helping to ensure a recovery in activity. Unemployment rates vary from province to province. At the national level, unemployment is set to continue declining (7% in 2016), although this fall does not reflect regional disparities. In those provinces where the oil and gas industry predominates, unemployment rates will increase, reflecting the gradual decline of the sector. Growth in other sectors will however help to create jobs for workers leaving the oil and gas industry. Household consumption will also be more lively, boosted by falling unemployment and lower property prices, and despite already high levels of household debt (170% of gross disposable income) and low savings rates (4.2% of gross disposable income). There could be some tightening of the monetary policy of the Central Bank (higher policy interest rates) in order to reduce inflationary pressures arising from growing domestic demand. Inflation will therefore steady at around its target rate (2%). The main downwards dangers arise from any unfavorable renegotiation of the NAFTA, alongside any correction in property prices, which will impact on residential investment and household consumption.

The government plans to spend 60 billion dollars over ten years on infrastructure projects aimed at boosting the economy. The first phase of this plan is scheduled for completion in 2019 and includes an investment of 10 billion dollars in public transport, alongside green infrastructure projects, in particular in Alberta, British Columbia and Quebec. The budget also includes redistributive measures targeted at the most economically disadvantaged and the middle classes. Taxes on low and mid-range incomes are due to be reduced, at the same time as those on high incomes will increase. The public debt at the federal level, although high, will stabilize. In terms of the provinces, Quebec and Ontario, the two most heavily indebted provinces, accounting for 60% of GDP, two-thirds of the population and over half of all exports, will need to continue their cautious management of their budgets. The current account deficit is expected to fall slightly in 2017. The current account balance will depend on raw material prices as well as the economic situation in the United States which is, far and away, Canada’s leading trading partner (75% of all exports). This lack of diversity in export markets is a potential threat to the current account balance, especially as the NAFTA could be subject to renegotiation following the election of Donald Trump. Exports in the non-oil and gas sectors should however offset the rise in imports (resulting from growing domestic demand), thus helping to produce an improvement in the balance of trade.

Justin Trudeau was elected Prime Minister of Canada in the most recent parliamentary elections in October 2015, taking over from the conservative Stephen Harper, who held the post for almost ten years. Trudeau’s Liberal Party (center-left) won 184 of the 338 seats in parliament, giving it an absolute majority. Diplomatic and trade relations have also been strengthened with a large number of countries (Mexico, Ukraine, etc.) since he came to power. In addition, the trade agreement between Canada and the EU (CETA), signed at the end of 2016, could have positive consequences for the country’s exports as of 2017. The Prime Minister also wants to reduce the obstacles to trade between the country’s ten provinces where non-tariff barriers still exist relating to the movement of goods, capital and people. Finally, the business climate is eased by the simplicity of starting a business and of obtaining credit and the low level of taxes.