country profile, canada.pdf


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Overview

The Canadian economy returned to growth in 2010, but faces the challenge of low productivity
Under the next phase of its economic action plan, the Canadian government intends to aid economic growth and job
creation through a low-tax scheme and investments in innovation, education, and training. According to Datamonitor
forecasts, the agricultural, industrial, and services sectors are expected to grow by 1%, 5%, and 4% in 2011, respectively.
The country is also trying to forge closer economic ties with other countries and is undertaking free-trade agreement (FTA)
negotiations with many of them. These factors are expected to enable greater economic growth. The Canadian economy
grew by 3% in 2010 and, according to Datamonitor forecasts, is expected to grow by 2.6% in 2011. However, the country’s
economy is still challenged by an appreciating Canadian dollar, high costs of labor, and low productivity gains. The strong
currency and poor productivity are also hampering recovery in net exports. Compared to the US, labor costs per unit of
output in Canada have increased 31% since 2005, largely due to the appreciating Canadian dollar and poor productivity.
While annual productivity growth has been 2.1% in the US since 2005, it has been a measly 0.5% in Canada over the same
period. It is evident that higher productivity would help to maintain balanced economic growth.

The country scores highly in human development; however, liberal immigration policies could backfire
Canada has performed well on various social parameters, with high human development and an efficient social security
system. In the UN Development Programme’s Human Development Report 2010, the country was ranked eighth out of 169
countries, with a Human Development Index (HDI) value of 0.888. On the income Gini coefficient, which ranges from zero
(perfect equality) to 100 (perfect inequality), Canada scored 32.6 for the period 2000–10. However, the favorable
government policy towards immigrants may become a socially contentious issue. In November 2010, the government
announced that it would welcome between 240,000 and 265,000 new permanent residents under its 2011 immigration plan .
High unemployment and the liberal immigration policy of the government will continue to create tensions in the country.

Canada is a cost-effective investment destination, but low R&D expenditure remains a challenge
Canada has retained its position as one of the most cost-effective places to do business among the advanced economies.
Its geographical proximity and trade and investment relations with the US make it an attractive destination for investment.
Traditionally, its machinery and equipments industry has served the manufacturing sector. Canada has an advantage in
terms of meeting requirements for technologically advanced goods in the aerospace industry. However, with respect to
R&D, the Canadian government's policies are less favorable than those of other nations. Canada’s progress in
technological development has not reflected its potential. Total expenditure on R&D as a percentage of GDP stands at
around 2%. It is a recognized fact that Canada faces an "innovation gap," as the country does not fare well in terms of R&D
spending as a percentage of GDP. In 2010, it received only 5,513 patents from the US Patent and Trademark Office,
compared to the 121,179 patents received by the US.

Country Analysis Report: Canada
© Datamonitor. This brief is a licensed product and is not to be photocopied

Published 07/2011
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