Economic analysis
Canada

Canada

Population 35,825 Million
GDP per capita 43280 US$
A3
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A1
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Synthesis

major macro economic indicators

  2014  2015  2016 (f) 2017 (f)
GDP growth (%) 2.5 1.1 1.2  2.1
Inflation (yearly average) (%) 1.9 1.1 1.7 2.1
Budget balance (% GDP) -0.5 -1.4 -2.5 -2.3
Current account balance (% GDP) -2.3 -3.2 -3.7 -3.1
Public debt (% GDP) 86.2 91.5 92.1 90.5

 

(e) Estimate   (f) Forecast

STRENGTHS

  • Abundant and diversified energy resources
  • Fifth largest producer of oil and gas in the world
  • Dynamic population growth (migration inflows)
  • Solid banking sector, well capitalised and strictly supervised

WEAKNESSES

  • Very open to and highly dependent on the US economy
  • Inadequate R&D spending
  • Loss of competitiveness of manufacturing companies against growth of emerging economy competitors
  • High level of household debt
  • Energy exports under threat (natural gas resources in United States)
  • Inadequate gas pipeline infrastructures 

RISK ASSESSMENT

Upturn in activity sustained by consumption

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 refocussing 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 unfavourable renegotiation of the NAFTA, alongside any correction in property prices, which will impact on residential investment and household consumption.

 

A recovery budget policy through increased public spending

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 stabilise. 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.

                   

Political stability and more trade agreements

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 (centre-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.

 

Last update: January 2017

A heritage of its  colonial past, Canada has a dual legal system:

-          a system inspired by British “common law” and used by nine of the ten provinces making up the Federal state,

-          Another system used by Quebec whose legal traditions are based on the codified principles of the Code Napoleon.

 

Lower Canada’s civil code, dating from 1st August 1866, was completely revised and implemented on 1st January 1994 as the Quebec Civil Code.

 

Under the British North America Act of 29 March 1867,Canadawas the first British colony to exercise executive and legislative powers as a federal state.

The Confederation of Canada came into effect as a dominion on 1st July 1867.

 

Payments

 

A single law governs bills of exchange, promissory notes and cheques throughoutCanada; however this law is frequently interpreted according to common law precedents in the nine provinces or according to the civil code inQuebec.

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 withinCanada.

 

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.

 

A real time electronic fund transfer system in operation since February 1999 – the Large Value Transfer System, or LVTS introduced by the Canadian Payments Association – 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.

 

Debt Collection

 

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, organising 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, barQuebec.

 

Within each province, provincial courts hear most disputes of all kinds concerning small claims, and superior courts hear large claims – for example, theQuebecsuperior court hears civil and commercial disputes exceeding 70,000 Canadian dollars (CAD) 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 right of final recourse before the Privy Council, inLondon, was abolished in December 1949.

 

 

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.

 

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 Quebec civil code reform, in effect since 1st January 2003, is intended to speed up and foster, by devolving a broader role for the court, smoother court proceedings.

 

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).

 

In February 2014, Bill 28, an Act establishing the new Civil Procedure, was passed by the National Assembly. It provides “accessibility, quality and promptness of civil justice” and promotes “exercise of the parties’ rights in a spirit of cooperation and balance”.

The court also will have the task of encouraging conciliation or mediation between the parties.

Insolvency trend Canada
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