Last year, strong vaccination uptake and the reopening of the economy helped Canada rebound from the Covid-19 pandemic slowdown. In the OECD’s latest figures, Canada’s economy grew by 4.8% in 2021—but remained lower than the OECD’s and global averages of 5.3% and 5.6%, respectively. Targeted government support programs boosted household incomes and enabled business recovery, providing stability and resiliency to the economy. However, inflationary pressure, virus variants, and an uneven sectorial recovery pose ongoing short- and medium-term challenges to growth. According to the OECD’s Economic Survey of Canada 2021, these challenges could be elevated should the fallout from hard-hit sectors such as leisure, travel, and entertainment begin to impact the rest of the economy. However, fiscal stimulus measures and growth in the United States—Canada’s largest trade partner—could help boost export-oriented industries, a core component of the national economy.
The OECD has forecasted that, in 2022, Canada’s economy will expand by 3.8%. Compared to last year, that expansion is expected to be lower than the global average of 4.5%, but on par with the OECD average. Despite recovery signals, Canada continues to face lingering pre-pandemic structural issues related to inclusive growth, energy transition, and healthcare. Furthermore, the fallout from the Covid-19 crisis negatively affected Canada’s fiscal balance, with the federal government’s debt-to-GDP ratio rising from 31.2% in 2019–20 to 50.7% in 2022–23, requiring at least in the medium run a clear road map for managing debt to head off risks to fiscal sustainability and to reassure markets.
As part of the economic recovery and the need to address ongoing structural economic challenges in Canada, leading experts are highlighting measures that attract investment, particularly in export-oriented SME industries, promote the development of clean energy solutions, and provide more resources to the healthcare system would facilitate growth in the Canadian economy.
Broadening global collaboration can help attract investment and drive business growth
Before the pandemic, World Bank figures showed that Canada’s gross fixed capital formation (investment) rate declined from 3.5% in 2017 to 0.3% in 2019. Last year, the risks and uncertainties caused by the Covid-19 pandemic, coupled with volatility in the global energy markets, negatively impacted investment in the Canadian economy, leading to a drop in the investment rate to -3.7% in 2020 and below the United States at -1.5%, but at close parity with the OECD average of 3.9%. As the economy rebounds, Canada’s investment rate has started to recover and is expected to reach 0.3% in 2022; it is still projected to remain below the OECD average of 4.4% and the United States at 3.8%.
MORE FOR YOU
For Canada to take the lead in tomorrow’s global economy, new research from the C.D. Howe Institute highlighted that addressing investment challenges—that remain feeble compared to the United States and other countries—will be critical in driving competitiveness and productivity growth in the economy.
According to Michael Tremblay, President & CEO at Invest Ottawa, “given the significant contribution (50%) of small and medium-sized enterprises (SMEs) to Canada’s GDP, along with being export-oriented and a source of innovation within the economy, enabling these SMEs to access global markets where they can commercialise at large scale would help attract investment into the economy.”
However, despite their critical role within Canada’s economy, only 11.7% of SMEs export their goods and services because of ongoing challenges to identifying and pursuing new business opportunities in international markets.
To help break through the barriers facing SMEs in a dynamic and increasingly protectionist economy, Sonya Shorey, Invest Ottawa’s Vice President of Strategy, says, “Canada must foster increased collaboration with stakeholders on the ground in international markets. This is critical to help SMEs more easily access new partners, investors, customers and related commercial opportunities in an ever-changing global economy.” Shorey added, “SMEs would then be in a better position to build key relationships, deploy their products and showcase market adoption to attract investment, and generate new global revenues that help build the Canadian economy.”
Given the fundamental shifts expected from the Fourth Industrial Revolution, Canada must keep pace with technological change to successfully compete in a “winner-take-all” economy, requiring upskilling the workforce and developing solutions for tomorrow’s economy.
For these reasons, Tremblay pointed out, “Canada will need to leverage regional and sectorial expertise, particularly in life sciences, smart mobility, digital technology, clean energy and advanced manufacturing in building an ecosystem that brings together policymakers, commercial and post-secondary partners to improve collaboration and knowledge sharing within the economy.”
For instance, Tremblay noted that the Ottawa Hospital’s partnership with the Sheba Medical Center (Israel), Area X.O, and its CAV Talent Catalyst Program has brought in best practices to address healthcare challenges and improve innovation in smart mobility. By strengthening global and regional collaborations that help Canadian companies develop cutting-edge solutions, Tremblay said, “Canada will become an attractive place for investment that creates skilled jobs and growth in the economy.”
Capitalise on the clean energy sector’s potential amidst a shifting global landscape
In Clean Energy Canada and Navius Research’s latest report, the clean energy sector is projected to grow by almost 50% and employ 639,200 people under the federal government’s new climate plan by 2030. A significant portion of the growth in jobs is forecasted in clean transportation, with the number employed expected to reach 364,000, out of which 184,000 people are set to be in electric vehicle (EV) technology alone. As the trend to electrify the transportation sector grows globally, the International Energy Agency (IEA) and Bloomberg have both noted strong uptake in EV technology among Canada’s trade partners, namely the European Union and the United States. However, for Canada to take advantage of the opportunities that lie ahead, the clean energy sector will need to scale up quickly and integrate its solution within the economy, which remains a problem because companies cannot gauge their full environmental benefits and potential for financial returns until the technology is at a large enough commercial stage. The hurdles to scaling up for the clean energy sector also constrain their expansion into foreign markets because potential buyers look for existing commercial usage in Canada.
To help address these bottlenecks faced by the industry, Jane Kearns, VP, Growth Services at MaRS, said in an interview, “Canada needs to start by quickly resolving a few important areas, such as existing regulatory obstacles and skills shortages to enable the uptake and development of clean energy solutions within the country.” In addition, to improve commercial adoption, Kearns added, “the government procurement of Canadian cleantech solutions that are exercised within WTO rules would be extremely beneficial for the sector. It would help Canadian companies provide a customer reference point that can be used to showcase domestic uptake and, importantly, reduce investment risk to access capital from VCs and debt financing institutions, which is a crucial element required by companies to scale up, build competitive products, and create new jobs.”
Additionally, given the growing usage of EVs and the demand for lithium−ion batteries in the coming years, Kearns highlighted, “Canada’s economy would benefit from building a globally competitive EV industry that leverages an established history of automaking to manufacture EVs for local and international markets.”
Recently, as supply chain constraints have showcased the importance of strong commercial linkages, Kearns noted, “Canada’s proximity and trading relations with the United States and Europe position the EV industry well.” However, to drive the EV sector’s value in global markets, Kearns remarked, “Canada should look to sustainably extract large deposits of lithium in subsurface brine in Alberta that would not only create major opportunities for the region but also broaden the appeal for doing business with Canada as countries look to transition toward a low-carbon economy.”
Improve healthcare data gathering to guide public policy consensus
Based on a review by the Canadian Public Health Association (CPHA) of Canada’s initial response to the Covid-19 pandemic, key findings revealed that public health measures were constrained by the lack of surveillance and monitoring tools, which at the start of the pandemic led to difficulties in obtaining first-line data on the evolution of the situation and coordinating a pan-Canadian approach to public health policy.
Furthermore, CPHA’s review found challenges regarding the type of data being collected and, at times, did not identify the socio-economic characteristics of those being tested, notably economic status and ethnicity, which generated an incomplete picture of the outbreak and limited the capacity to target programs to meet the needs of those most affected or at risk and to identify health inequities.
Moreover, as new variants, such as Delta and Omicron, have emerged, the disproportionate socio-economic impact on poorer households has begun to resurface, highlighting C.D. Howe Institute’s cautionary note last year to improve healthcare data and information gathering to help authorities respond to emerging health crises more efficiently.
To address ongoing healthcare challenges and plan for future contingency measures, Prativa Baral, Epidemiologist and PhD Candidate at Johns Hopkins School of Public Health said in an interview that “Canada would benefit from more standardized and centralized data collection tools that accurately provide local, regional, and national governments with timely information to enable health experts evaluate potential outbreaks faster and reduce duplication of efforts across the country.”
By improving coordination among federal, provincial, and territorial governments to securely and safely gather the required information, Baral added, “healthcare resources can be allocated more efficiently and policy decisions streamlined. This will help decision-makers manage public needs more equitably in an evolving pandemic and bring consistency to the measures being adopted by various public health agencies.”
With the emergence of Omicron and previous variants, the evolving nature of the Covid-19 pandemic has highlighted the importance of having a strong health infrastructure equipped to manage not just the medical side but also other social determinants of health.
According to Baral, “It will be critical for Canada to adequately invest in all aspects of the public healthcare system to support the overall well-being of the population, and better prepare for the next health crisis.”
However, in recent years, Canada’s investment in the public healthcare system has lagged compared to most peer nations, contributing to resource constraints and difficult decisions being made during the Covid-19 pandemic that negatively impacted Canadians.
For these reasons, Baral noted, “overcoming these shortcomings needs to be addressed because only after having the appropriate mechanisms in place for safeguarding public health can the economy at-large benefit from a productive and healthy workforce.”
Given the ways digital technologies are being harnessed to support the public health response to Covid-19, Baral also highlighted that “one way to improve these shortcomings in the system would be to leverage technology in improving healthcare response and outcomes, which combined with public healthcare data, would allow new solutions to be developed and critically support innovation in the sector.”
Special thanks to Aleksandra Dysko, Epidemiologist for providing a background overview of infectious diseases and the initiatives taken during the initial Covid-19 outbreak in Canada.