Economic recovery represents opportunity for ‘great Canadian restart’: RBC report

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The COVID-19 pandemic has caused one of the worst recessions in history, but the recovery represents an opportunity for a “great Canadian restart,” said the research department of the Royal Bank of Canada in a statement. new report .

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“Now is a natural time for decision-makers coming out of the pandemic… author said in an interview.

The Canadian economy experienced an average annual growth of 2.1% between 2010 and 2019, roughly the same as in the previous decade, and down from an average of 2.4% between 2000 and 2009, according to Statistics Canada data. The slowdown reflects an aging population, but also weak business investment and productivity growth, which have hampered the country’s ability to generate wealth from a shrinking labor pool.

The pandemic may have made matters worse. In October, the Bank of Canada lowered its estimate of “potential” growth – the rate at which it believes the economy can grow without generating excessive inflation – to 1.6% because the recession weighed heavily on the economy. investments. That’s why policymakers like Finance Minister Chrystia Freeland, who is due to issue an economic update on December 14, should prioritize spending that will strengthen the country’s economic capacity in the longer term, Leach said.

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Ahead of their re-election in September, the Liberals unveiled a hefty federal budget that provided more than $ 100 billion in spending to guide the economic recovery. However, critics including David Dodge, the former Governor of the Bank of Canada, said too little of the spending was going on initiatives that would make the economy more competitive. Instead, Freeland has focused on redistribution, increasing the deficit to bolster emergency COVID benefits and fund various pet projects that will have little impact on the trajectory of the economy.

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Leach’s report suggests a path that policymakers could take if they want to increase the country’s potential growth rate. Leach has selected six “pillars” for a growth-oriented policy agenda, including an approach to innovation that favors companies that have a realistic opportunity to grow.

Despite “above-average” government support in recent years, Canadian companies consistently invest less in research and development than their international counterparts, suggesting that current approaches to industrial policy need to be rethought, according to the report. The transition to a green economy is an obvious place to focus, and Canada could become a leader if governments focus their spending on programs that reduce carbon emissions, and clarify their climate policies so that uncertainty regulatory framework does not constitute a barrier to investment, according to the report.

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Another pillar is the digital economy. Data assets are becoming increasingly important as services move online. Canada should strike trade deals that remove barriers to international trade in digital services, and it should guard against local intellectual property that is sucked up by international tech giants, according to the report.

Taxes play an important role in competitiveness, but the federal government has not revised tax policy since 1967. Leach called on Parliament to conduct a new review, with a focus on reducing special interest breaks so that personal rates can be lowered to make Canada more attractive to international talent.

“It won’t be easy,” Leach said. “We’re going to have to sort out a lot of things. “

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