Canada's Potential Growth: Another Victim of the Crisis

29 Pages Posted: 8 Apr 2011

See all articles by Marcello M. Estevão

Marcello M. Estevão

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: January 1, 2010

Abstract

This study investigates the impact of the current financial crisis on Canada’s potential GDP growth. Using a simple accounting framework to decompose trend GDP growth into changes in capital, labor services and total factor productivity, we find a sizeable drop in Canadian potential growth in the short term. The estimated decline of about 1 percentage point originates from a sharply decelerating capital stock accumulation (as investment has dropped steeply) and a rising long-term unemployment rate (which would raise equilibrium unemployment rates). However, over the medium term, we expect Canada’s potential GDP growth to gradually rise to around 2 percent, below the pre-crisis growth rate, mostly reflecting the effects of population aging and a secular decline in average working hours.

Keywords: Canada, potential growth, TFP, financial crisis, labor productivity

JEL Classification: G01, D24, J24, O51, O16, O4

Suggested Citation

Estevao, Marcello M., Canada's Potential Growth: Another Victim of the Crisis (January 1, 2010). IMF Working Paper No. 10/13, Available at SSRN: https://ssrn.com/abstract=1400096 or http://dx.doi.org/10.2139/ssrn.1400096

Marcello M. Estevao (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

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