Interest rate cuts by the Bank of Canada may be required to support economy as trade tensions continue: report
Productivity and housing affordability must improve in Canada if its economic outlook is to improve, according to a new report, as trade tensions continue to pummel the national growth forecast.
The Organization for Economic Co-operation and Development’s latest Economic Survey of Canada also suggests interest rate cuts by the central bank could be required to avoid sharp pain for consumers, although that will also largely depend on whether inflation remains in check amid counter-tariffs on US goods.
Housing affordability has emerged as a huge component of Canada’s cost-of-living crisis, seeing scores of Canadians – especially first-time homebuyers in larger cities – frozen out of the market thanks to ballooning home prices and mounting costs.
The OECD said worsening affordability is driven by those rising prices and rents, and recommends reforming zoning regulations and streamlining permit processes to increase housing supply.
The survey further stresses the importance of preserving carbon pricing mechanisms to support Canada’s climate goals. It cautions that the recent suspension of the consumer fuel charge weakens the carbon price signal.
“There is room to improve the efficiency of the tax system and further reduce risks from the mortgage market, where high debt weighs on household finances and financial stability,” said Pereira. “To boost long-term growth prospects in a sustainable way, more needs to be done to raise productivity and tackle climate-related risks.”
Economic reforms emphasized
The report also urges fiscal caution, stating that Canada remains well-positioned to manage short-term trade shocks, such as those stemming from US tariffs. However, it recommends reducing public debt over the medium term while maintaining investment in defence, healthcare and social programs.
Structural reforms are also emphasised. The OECD calls for enhanced productivity through increased business investment in research and development – currently at 1.8% of GDP, compared to the OECD average of nearly 3%. Measures to address internal trade barriers and regulatory inefficiencies are also advised.
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