Canada's Potential Growth: Another Victim of the Crisis?

By Marcello M. Estevão, Evridiki Tsounta

January 1, 2010

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Marcello M. Estevão, and Evridiki Tsounta. Canada's Potential Growth: Another Victim of the Crisis?, (USA: International Monetary Fund, 2010) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Labor, Labor force participation, Labor productivity, Potential output, Production, Total factor productivity

Keywords: Canada, Equilibrium unemployment, Financial crisis, Labor force participation, Labor force participation rate, Labor productivity, Labor productivity growth, Potential GDP, Potential GDP growth, Potential growth, Potential output, TFP, TFP contribution, Total factor productivity, Trend TFP, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/013
Stock No:

WPIEA2010013
ISBN:

9781451962048
ISSN:

1018-5941

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