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

Marcello Estevão and Evridiki Tsounta

No 2010/013, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; Canada; potential GDP; financial crisis; labor force participation rate; potential growth; TFP; labor productivity; labor productivity growth; TFP contribution; potential GDP growth; trend TFP; equilibrium unemployment; Total factor productivity; Labor force participation; Potential output (search for similar items in EconPapers)
Pages: 29
Date: 2010-01-01
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Citations: View citations in EconPapers (4)

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