Bill Morneau’s perspective on the International Monetary Fund’s latest assessment of the Canadian economy is one he would prefer the public didn’t dwell upon. According to a press release from the Finance Department, the Minister “welcomed” the Fund’s findings that Canada has employed a judicious mix of policies to support inclusive growth and reduce vulnerabilities in the financial system. The IMF’s report highlighted Canada’s standout economic growth in 2017, noting the historic low in the jobless rate and a deliberate government effort to boost productivity and competitiveness, including business investment tax cuts. Morneau expressed “pride” that Prime Minister Justin Trudeau’s government’s actions were recognized internationally.
The IMF’s standard process involves an annual review of member countries’ economies, with teams dispatched to assess fiscal, monetary, and financial policy effectiveness. On May 21st, the Fund released its preliminary report of the Canadian team’s visit to Washington, representing the first stage of a longer process. The report focused on key indicators and offered recommendations. While the IMF generally acknowledged Canada’s success in 2017 – fueled by a substantial increase in immigration and a surge in construction activity – the organization cautioned that growth was slowing and that significant risks existed on the downside. Specifically, the IMF projected an economic growth of 1.5 per cent for this year, trailing the United States’ current trajectory, and flagged concerns revolving around Canada’s persistently weak productivity growth.
At the core of the IMF’s concerns was the challenge Canada faces in attracting investment that both diversifies the economy beyond traditional sectors and fully utilizes opportunities presented by new trade agreements. The report underscored the need for a more strategic approach, specifically suggesting that the federal government incorporate a fiscal rule to enhance financial stability. The IMF also pointed to inefficiencies within the Canadian federation, noting the difficulty in achieving free trade between provinces – an impediment that the Fund estimated could boost GDP by almost four per cent. Furthermore, the IMF expressed disappointment with Canada’s prioritization of trade negotiations with the United States over internal trade agreements.
The IMF’s observations were backed by economic analysis from various sources. Deloitte, for example, echoed the IMF’s growth outlook while acknowledging the risks. However, perspectives within the Canadian business community highlighted the concrete impact of restrictions on trade between provinces. Andrea Stairs, managing eBay Inc.’s Canadian business, succinctly illustrated the challenge: “We see the impact on small businesses,” she stated, “Being able to connect with buyers across a vast region is a way to accelerate their business and stabilize their business when local conditions go bad.” This sentiment wasn’t lost on political commentators who argued that a freer flow of goods and services across Canada would spur innovation and economic dynamism.
Despite these concerns, Morneau and the Trudeau government stood by their assessment, emphasizing the successes achieved through targeted policy measures. However, the IMF’s scrutiny served as a stark reminder that Canada’s economic growth was vulnerable to external shocks and that internal structural challenges needed to be addressed. The organization’s warnings about slow productivity growth, the need for improved coordination between federal and provincial governments, and the importance of a strategic approach to trade—points that were emphasized repeatedly—suggested a nuanced view that perhaps Bill Morneau wished to avoid.