major macro economic indicators
|2019||2020||2021 (e)||2022 (f)|
|GDP growth (%)||1.9||-5.2||4.6||3.8|
|Inflation (yearly average, %)||1.9||0.7||3.4||6.7|
|Budget balance (% GDP)||0.1||-11.3||-4.7||-2.7|
|Current account balance (% GDP)||-2.0||-1.8||0.0||1.0|
|Public debt (% GDP)||92.9||126.9||117.3||115.1|
(e): Estimate (f): Forecast
- Abundant and diversified energy, mineral and agricultural resources
- Fifth-largest oil and gas producer in the world
- Strong, well-capitalised and well-supervised banking sector
- Immediate proximity to the large U.S. market
- Development of trade relations (CETA with the EU)
- Excellent business environment
- Dependent on the U.S. economy (1/2 of FDI stock, integration of the two countries’ automotive industries) and energy prices
- Loss of competitiveness in manufacturing companies due to low labour productivity
- Insufficient R&D expenditure
- Decrease in the share of the working population, only slowed down by high selective immigration
- High household debt (more than 180% of disposable income in late 2021)
- Deteriorating housing affordability
- Energy exports weakened by inadequate supply pipelines to the coasts and the United States, and by the U.S.’ own resources
Activity moderates, but remains robust
In 2022, the recovery from the recession triggered by the COVID-19 pandemic will continue. While growth will moderate, it is expected to be robust. Private consumption (about 55% of GDP) is one of the drivers, benefiting from the easing of health measures that is freeing up pent-up domestic demand, particularly for services. While high inflation is expected to squeeze household purchasing power, households can tap into savings accumulated (estimated at more than CAD 300 billion or 12% of GDP) when they were still subject to strict restrictions to boost spending. The tight labour market, as evidenced by a record low unemployment rate (4.9% in June 2022), remains supportive of consumption. However, with wages struggling to keep pace with price increases, consumption is expected to moderate towards the end of the year. While growth in housing and commodity prices (food, energy) is expected to moderate by the end of 2022, inflation will remain well above the upper limit of the Bank of Canada's target range (1-3%). The central bank has taken an increasingly aggressive stance on inflation, raising its policy rate by 225 basis points since March. It is now at 2.5% and could increase further to 3.5% by the end of the year. In addition, the Bank of Canada has also begun the process of reducing the size of its balance sheet, which had ballooned to 20% of GDP by the end of 2021 because of the asset purchase programmes implemented in response to the crisis. Tighter credit conditions are expected to dampen residential investment and begin to slow business investment. However, the strength of corporate balance sheets at the end of 2021 and the increase in inventories in response to supply chain disruptions will continue to support business investment. In addition, capital investment spending in oil and gas extraction, sluggish since 2014, should rebound on the back of high prices. Exports will also benefit, supporting the positive contribution of foreign trade to activity. In contrast, the contribution of government consumption will be diminished by the withdrawal of support measures put in place in response to the pandemic.
Government deficit declines, but remains above pre-crisis levels
While the federal budget deficit will remain above its pre-crisis level (below 1% of GDP), it is expected to continue to shrink in 2022, with the reduction in pandemic-related aid to households and businesses (over 15% of GDP). However, this reduction will be partially offset by new spending introduced in the 2022 budget. These funds are aimed specifically at housing - to make it more affordable, but also at initiatives to fight climate change, as the government has committed to reduce its emissions by 40% by 2030. Against the backdrop of the war in Ukraine, defence spending has also been increased for the next five years to bring it closer to 2% of GDP, in line with NATO targets. The increase in federal revenues, already supported by revenues associated with higher commodity prices, will be accompanied by revenue-generating measures. In particular, banks and life insurers will be subject to a one-time 15% tax for 2021 and a permanent 1.5 percentage point surtax on their income. While the general government debt ratio is very high, after deducting, in particular, the assets held by the Canada Pension Plan and the Quebec Pension Plan, the net debt ratio (47% of GDP) remains lower than that of its G7 peers.
Current account balance turns positive
The current account has been in deficit since 2009, but turned into a small surplus in 2021. In 2022, the current account balance is expected to remain positive, reflecting the evolution of the trade balance. The trade balance will benefit from higher export revenues associated with commodities, but also from the moderating effect of supply chain disruptions on imports, particularly in the automotive sector. The services account, on the other hand, is expected to swing back into deficit as travel and transportation spending gradually accelerates with the reopening of borders. Favourable metals prices, which many Canadian companies mine abroad, would extend the primary income surplus. Remittances will continue to contribute to a small deficit in the transfer account. External debt, largely owed by the private sector (about 80%), is still high (over 130% of GDP) but is expected to stabilize.
Trudeau government's stability strengthened by deal with NDP
Justin Trudeau (Liberal Party), Prime Minister since November 2015, retained his position following the September 2021 snap federal election. The election resulted in a new Liberal minority government (160 seats out of 338) and an unchanged balance of power compared to the 2019 election. Although the Conservative party, led by Erin O'Toole, received the most votes, as it did in 2019, it fell short of a majority, obtaining 119 seats (-1). The pro-independence Bloc Québécois (BQ) retained 32 seats, while the New Democratic Party (NDP) held 25 seats (+1). While no minority government has served a full term, a "confidence and supply agreement" that the Liberals signed with the NDP in March 2022 could provide stability to Justin Trudeau's government until 2025. Under the agreement, the party led by Jagmeet Singh will support key government initiatives and, in return, the government will advance NDP priorities, starting with dental and pharmacare programs. The non-binding agreement is fragile and could be broken if the government's actions do not meet the NDP's expectations.
Marked by some tensions under the Trump administration, relations with the United States appear to be more stable under the Biden administration. Differences remain, however, on energy and trade policy, such as the U.S. administration's decision to raise tariffs on Canadian softwood lumber (from 9 to 18%) or the trade dispute over the allocation of tariff rate quotas on Canadian dairy products.
Last updated: August 2022
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.