The recent economic crisis could permanently limit Canada’s future GDP growth, unless governments get rid of barriers to foreign ownership and policies that hinder the elderly from working, according to report published Thursday.
The report by the Centre for Study of Living Standards in Ottawa notes that Canada survived the recession relatively well compared to many other countries but the recession still led to a downward spiral in potential growth.
It says the lower level of investment that came with the downturn led to a one percentage point fall in potential GDP growth last year, which the report authors describe as “severe.” They expect growth to go back into the positive to about two per cent in the medium term, but that is still at a rate below pre-crisis levels.
The authors, who are economists with the International Monetary Fund, suggest this can be fixed by policies aimed at raising potential growth. They suggest encouraging international trade and reducing barriers that prevent foreign ownership of telecommunications companies, airlines and broadcasters.
They say that Canada’s labour productivity has slowed, and removing obstacles that make it harder for seniors over age 65 to work is another way Canada’s GDP growth can fully recover. They also cite the need to bolster research and development, which is typically low in Canada compared to the rest of the world.
The report said that even though Canada might need help as it continues to recover, its outlook for potential growth is better compared to the rest of the world, due to strong economic frameworks that helped it avoid much of the impact of the recession in the first place.
It also lauded the federal and provincial governments for cutting corporate income taxes and considering policies that would increase competition and productivity.