Canada’s Potential Productivity and Output Growth: A Post-Crisis Assessment

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, labour services, and total factor productivity, we find a sizeable drop in Canadian potential growth rate 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). However, over the medium term, we expect Canada’s potential GDP growth to gradually rise to around 2 per cent, below the pre-crisis growth rate, partly reflecting the effects of population aging.

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

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