Economic and Fiscal Overview

After nearly five years of navigating unprecedented global challenges—from the pandemic and Russia's unprovoked full-scale invasion of Ukraine to surging global inflation—the Canadian economy has proven remarkably resilient in the face of the pandemic recession, and more recently to one of the most synchronized global monetary tightening cycles in decades. Canada's recovery from the largest recession since the Great Depression has been notably faster and stronger than recoveries from previous recessions and, more recently, those of global peers. Canada is well positioned, both economically and institutionally, to manage currently high global uncertainty and a complex geopolitical landscape.

Contrary to the prevailing view that curbing inflation would inevitably trigger a recession, the Canadian economy has achieved a soft landing. For all of 2024, inflation has been within the Bank of Canada's target range, and price stability has been restored across most sectors. As importantly, growth has moderated as the Bank of Canada intended without causing the widespread job losses many feared, putting our economy in an advantageous position for a healthy rebound.

Responsible fiscal management has helped the Bank of Canada to return its policy rate toward neutral levels. With stable inflation, the government can continue to pursue strategic investments aimed at supporting productivity and raising living standards.

Amid global economic uncertainty, the government's economic plan has laid a strong foundation to drive growth now and in the years to come. This economic plan is focused on four key pillars and it is already delivering results.

First is making generational investments to equip Canadians for success in the workforce while reducing everyday costs. Key initiatives such as $10-a-day child care, free dental care, and prescription medications strengthen social services, improve affordability, and ease financial pressures. To address housing affordability, the government is accelerating home construction and supporting first time home buyers, while balancing immigration with the supply of housing and jobs to raise living standards. These efforts not only benefit Canadians but also enhance Canada's appeal as a place to live and work, giving businesses confidence in their ability to attract talent.

Second is securing Canada's AI advantage and investing nearly $5 billion in Canadian brainpower to foster innovation and promote scientific breakthroughs here at home. This is about ensuring Canada's best and brightest minds have the right tools and incentives to make cutting-edge discoveries in Canada, in turn, boosting innovation and productivity across our economy. This Fall Economic Statement further invests in Canadian innovators and puts in place further incentives for capital investment.

Third is overcoming geopolitical risks and uncertainty, and adapting to a rapidly shifting global trade landscape by deepening our economic ties with trusted trading partners and ensuring our supply chains are resilient. The government is focused on countering the U.S. threat of tariffs while fostering a stable and competitive business investment climate. We are taking a Team Canada approach in our defence of the national economic interest, and are confident that by being strong, smart, and united Canada will be successful.

Fourth is ensuring Canada is leading in the global competition for capital needed for the industrial transition. To achieve this the federal government's $94 billion suite of major economic investment tax credits, most of which are already available to investors, support power generation and the manufacturing of clean technology in Canada. Investing in our critical minerals and metals supply chains, diversifying trade routes, and strengthening our position as a global energy superpower underpins this work.

Inflation has been within the Bank of Canada's 1 per cent to 3 per cent target range throughout all of 2024 (Chart 1). Employment gains have been strong, with 330,000 jobs created over the last year, and inflation-adjusted wages are now 5 per cent higher than pre-pandemic levels. Real gross domestic product (GDP) growth has averaged nearly 2 per cent annualized in the first three quarters of 2024. With inflation anchored at 2 per cent, the Bank of Canada led all G7 central banks in cutting its policy rate, reducing it five times in a row from 5 per cent to 3.25 per cent, with private sector economists expecting further declines to 2.75 per cent by mid-2025—the mid-point of the nominal neutral interest rate range estimated by the Bank of Canada.

Looking ahead, strong supply-side drivers, such as rising labour force participation of working-age women and improving business investment, further encouraged by tax measures in this Fall Economic Statement, will support a non-inflationary acceleration of economic activity. The International Monetary Fund (IMF) projects Canada to lead the G7 in GDP growth in 2025 (Chart 2), while private sector economists expect growth at 1.7 per cent.

The government's prudent fiscal management has supported the downward path for interest rates, while the economic plan focuses on expanding economic capacity and creating more jobs. The priority now is to improve productivity to sustain wage growth. This involves ensuring more Canadians can succeed in the workforce, and supporting business investment to drive productivity gains. The government is committed to fostering growth, innovation, and productivity, all while maintaining the lowest net debt-to-GDP ratio in the G7 and preserving fiscal sustainability. Canada's projected net debt-to-GDP ratio for 2024 is just 14.4 per cent, well below the average of other G7 countries of 103.8 per cent.

The government's responsible fiscal management is essential for managing new and unforeseen economic challenges today and in the years ahead, and for upholding Canada's AAA credit rating. By ensuring it can borrow at the lowest cost, the government can invest in Canadians, accelerate growth, and build a fairer Canada for every generation.

1. Recent Economic Developments

Interest rates have come down further and faster than in peer countries. The same is true of inflation. Inflation has also come down further and faster. That is real relief for Canadians.

The government's economic plan has been focused on enabling a macroeconomic environment conducive for inflation to return to target, and where interest rates could come down after inflation eased. Recently, there are signs that rents for new leases are falling and are expected to fall further.

Canada has run a much tighter fiscal policy than our G7 peers, which has contributed to inflation coming down more quickly and interest rates coming down sooner. Canada's general government deficit-to-GDP ratio of 2 per cent in 2024 is the lowest in the G7, tied with Germany (Table 1). The United States deficit currently sits at 7.6 per cent of GDP, while France is at 6 per cent and the United Kingdom is at 4.3 per cent.

Canada's responsible plan is delivering a world-leading economic recovery for Canadians.

A Historically Strong Economic Recovery

COVID-19 and the recession it caused were a once-in-a-generation social—and economic—trauma. The country was hit by the deepest recession since the Great Depression. At the height of lockdowns, 3 million Canadians lost their jobs and another 2.5 million Canadians were working significantly reduced hours—in total representing about 30 per cent of the pre-pandemic workforce. While this was in part due to the unique public health-driven nature of the shock, there were serious risks that the economy would not bounce-back.

The government responded forcefully, with a $350 billion support plan for people, jobs, and businesses. It was extremely expensive—and it worked. The government's response secured Canada's recovery, preventing a persistent collapse in demand that would have kept workers underemployed and business activity sluggish for much longer. The economy is now 7.3 per cent larger than it was before COVID first hit and there are 1.4 million more jobs in Canada. And the government's massive economic support for Canadians was one reason the country was able to come together to save lives. Canada had the second lowest mortality rate from COVID in the G7. Had Canada suffered from the same mortality rate the U.S. experienced, about 75,000 more Canadians would have died.

But as the public health emergency ended, a fresh challenge emerged—a historic surge in inflation, triggered by Russia's illegal and full-scale invasion of Ukraine and by the economic imbalances and stressed supply chains created by lockdowns. Inflation was extremely painful for Canadians. The government recognized that supporting the Bank of Canada's efforts to bring inflation down needed to be a key priority—which is why Canada chose the fastest rate of fiscal consolidation in the G7. Bringing fiscal spending down at a time when Canadian families were bearing the double burden of elevated inflation and the high interest rates required to reduce inflationary pressures was challenging. But it was the right thing to do, because the greatest relief for Canadians is for inflation, and then interest rates, to come back down.

In 2024, inflation eased and has been within the Bank of Canada's control range all year. As a result, the Bank of Canada cut its policy rate for the fifth consecutive time in 2024, bringing it to 3.25 per cent. Private sector economists predict interest rates will be down to 2.75 per cent by mid-next year.

Low inflation and falling interest rates are good news for Canadians and businesses, but getting here has been painful. The high interest rates the Bank imposed to rebalance demand and supply and fight inflation have intentionally constrained the economy, dampening business investment and consumer demand. Contrary to the predictions of many economists, a recession was avoided. Instead, Canada has achieved the soft landing that seemed so unlikely when inflation surged. But a soft landing is still a landing—high interest rates have slowed growth, squeezed family budgets, and constrained business investment.

With inflation under control and interest rates coming down, the government can and will focus on supporting Canadians, who have been under so much strain, and putting in place policies and investments that will crowd in private capital and drive jobs and growth. With a soft landing from the COVID recession and its aftermath in sight, the focus is now to work with Canadians and businesses to drive shared prosperity.

Today, Canada's economy is growing and has shown remarkable resilience. Despite the magnitude of the pandemic shock being much larger than recent recessions—including the 2008-09 global financial crisis—real GDP (Chart 3) and employment (Chart 4) recovered faster during the pandemic recovery. This was the fastest recovery from a recent recession (Chart 5). Canada's rapid pandemic recovery, made possible by unprecedented federal government support for people, jobs, and businesses, limited economic scarring and lifted Canadian workers through extraordinary global economic challenges.

More recently, even as interest rates rose around the world to fight the sharp rise in inflation, the Canadian economy has fared better than expected and has achieved a soft landing. After slowing in the second half of 2023, real GDP increased by 2.1 per cent on an annualized basis in the first half of 2024, outperforming the expectations of private sector economists at the time of Budget 2024(Chart 6). As well, revisions to historical GDP over 2021 to 2023 revised up real GDP by a cumulative 1.3 per cent over that period driven by higher spending by households and significant upward revisions to business investment, lifting up productive capacity. This also suggests Canada's recovery from the pandemic recession was stronger than previously thought.

While the Canadian economy has achieved a soft landing, higher interest rates have been challenging and the economy is operating below its capacity. Weak consumer confidence, financial stress, and upcoming mortgage renewals have contributed to declines in consumer spending per capita and an elevated savings rate (Charts 7 and 8).

With some temporary factors such as this summer's wildfires and disruptions to rail networks and oil production, growth in the third quarter eased to 1 per cent. Nevertheless, domestic demand was still strong, buoyed by consumer spending firming up and a rebound in residential investment activity following three quarterly declines. The completion of the Trans Mountain Expansion Project was also a driver of growth for the Canadian economy, and is generating substantial new federal and provincial revenues (Charts 9, 10, and 11). Real exports of crude oil rose 9.5 per cent at an annualized rate in the third quarter, supporting real GDP growth by 0.3 percentage points in that quarter. These positive factors were offset by lower business investment and a smaller inventory build-up than in the previous quarter.  

Inflation Has Been Within Target Range All Year

For all of 2024, inflation has been declining and within the Bank of Canada's target range of 1 per cent to 3 per cent. In September, inflation in Canada declined to 1.6 per cent, its lowest level in over 3.5 years, and in October, it was at 2 per cent (Chart 12).

The inflationary pressures brought on by the pandemic from supply chain congestion at a time of strong global demand for goods have subsided, but supply chains remain fragile and subject to significant geopolitical risk. Energy prices have come down from the peaks of mid-2022 brought on by Russia's illegal full-scale invasion of Ukraine. The unwinding of these global factors paired with the downward pressure on domestic demand, intentionally created by higher interest rates, has brought inflation down from a peak of 8.1 per cent in June 2022 to 2 per cent in October 2024.

Price pressures have moderated and are no longer broad-based. Excluding rising mortgage interest costs, which are a direct result of earlier interest rate hikes, inflation was at 1.4 per cent in October. Measures of core inflation have also declined from roughly 3.3 per cent at the beginning of the year to 2.6 per cent in October. Canadians have benefitted from disinflation in goods prices, supported by softer demand and lower costs for imported goods and commodity inputs. In particular, inflation for groceries has fallen from a peak of 11.4 per cent in January 2023 to a recent low of 1.4 per cent this past April, before edging back up to 2.7 per cent in October.

The cost of housing remains elevated, but it is easing. It is by far the largest expense for most Canadians and the largest contributor to overall inflation. Encouragingly, growth in asking rents for new leases has decreased in many markets (Chart 13), with asking rents for apartments in Toronto and Vancouver down 9.4 per cent and 8.9 per cent, respectively, from a year ago. And while mortgage interest costs remain elevated, their growth has begun to decelerate, which has helped bring down overall shelter inflation.

Targeted policy actions by the government are helping to reduce price pressures for many key services. Canadians are paying less for child care as the Canada-wide system of $10-a-day child care is built, leading to a 28 per cent decrease in the consumer price index for child care since December 2021. And policy actions to promote competition in telecom services resulted in further declines of around 18 per cent for wireless data plans so far in 2024 relative to last year.

After easing to 1.6 per cent in September, and settling at the 2 per cent target in October, inflation is expected to remain near 2 per cent over the 2025-2029 forecast period.

Overall, Canada has seen inflation decline faster and with lower cumulative inflation than in the U.K. and the U.S. From 2019 to 2024, cumulative inflation in Canada has been 5.8 and 4.2 percentage points lower than in the U.K. and U.S., respectively. Inflation excluding food and energy—a measure of underlying price trends—in Canada has also stabilized at a lower rate than some peers recently (Chart 14).

Canada is Leading the Global Rate Cut Cycle

The Bank of Canada was the first G7 central bank to lower interest rates, cutting its policy rate in June, the first of five consecutive cuts. This year, the Bank has cumulatively cut 175 basis points to bring the policy rate from 5 per cent to 3.25 per cent. Private sector forecasters expect the Bank of Canada to gradually cut its policy rate to 2.75 per cent by mid next year. This indicates Canada's achievement of low and stable inflation and a soft landing.

While central banks in other advanced economies have also embarked on the path of monetary policy easing, they have done so at different paces (Chart 15). In the U.S., the Federal Reserve reduced its policy rate by 50 basis points in September and a further 25 basis points in November. However, with inflation pressures remaining elevated in the United States, the Fed's easing has been more gradual. Resilient growth in the U.S. and higher inflation expectations have tempered market expectations for future rate cuts, helping to sustain the U.S. dollar at elevated levels. Along with expectations of increased fiscal spending in the U.S., this has led to higher long-term interest rates in the U.S., exerting upward pressure on global rates. In Canada, however, the impact on long-term rates has been more muted (Chart 16).

In Canada, sustained rate cuts by the Bank of Canada will support stronger economic activity. Lower interest rates will translate into reduced borrowing costs for Canadians, which will boost consumer spending, particularly for large purchases such as durable goods, and increase residential investment. The recovery in household spending will be further bolstered by higher household wealth and a savings rate that has risen to a three-year high of 7.1 per cent, providing Canadians with greater financial flexibility and resilience. Lower interest rates and improving demand are expected to improve business sentiment and support business investment, which has been strained by higher financing costs since 2022. Overall, growth in Canada is expected to reach a solid pace of 2 per cent in the second half of 2025 according to private sector economists.

Wage Growth is Outpacing Inflation

The government recognizes that Canadians need more money in their pockets, and strong wages, driven by a growing economy, play a key role in achieving that goal.

Strong wage growth is putting more money in the pockets of the middle class who are, on average, seeing their paycheques increase even after accounting for inflation. Wage growth has now outpaced inflation for the past 21 consecutive months. This is the longest streak in the G7, contributing to Canada recording the strongest growth in real wages—wages after accounting for inflation—since pre-pandemic in the G7, at more than 5 per cent (Chart 17 and 18). These wage gains have been broad-based across wage quintiles (Chart 19).

Ensuring that wage gains can be sustained is a central focus of the government's economic plan. In the long term, productivity is a key determinant of wages. That is why the government is investing in growing the productive capacity of the Canadian economy and working to support business investment and bring in private capital.

Living Standards are Recovering from the COVID Recession

Overall, as of the third quarter of this year, workers are now taking home 51.3 per cent of all national income, compared to the 25-year average of 50 per cent. This provides a reassuring contrast to the long-term global trend of declining labour share, which has often raised concerns about inequality.

Although many factors influence the living standards of Canadians, real income growth is the ultimate barometer for how Canadians are doing. Despite the turbulence caused by the pandemic and the exceptionally high inflation that followed, Canadians' real incomes—the actual purchasing power of their paycheques—are solidly above their pre-pandemic levels (Chart 20).

A wide range of income measurements affirm this milestone in Canada's recovery:

• Real median before-tax income has grown by 3.1 per cent since 2019, capturing gains for Canadians in the middle of the income distribution.
• Real median weekly earnings are 6 per cent higher than in 2019, reflecting a higher purchasing power of a typical worker's paycheque—compared to just 3.4 per cent in the United States over the same period. Median weekly earnings have outpaced inflation for the past 21 consecutive months.
• Real disposable income per capita has risen by 4.8 per cent since 2019. This measure provides a clear view of income available to the average Canadian for spending and saving. Canada has seen the second-fastest growth in real disposable income per capita among its peers since 2019, behind the United States (Chart 21).

While real GDP per capita is a reliable long-term indicator of living standards, it is less effective in the current context. The recent softness in real GDP per capita significantly reflects temporary factors, such as the unprecedented, strong population growth and the time required for newcomers to fully integrate into the economy.

$10-a-day Child Care is Unlocking Workforce Potential and Driving Economic Growth

Canada boasts the highest overall labour force participation rate in the G7. The government has been supporting a higher labour force participation rate for women, which for women in their prime working years is at 85.1 per cent as of November of this year, more than a full percentage point higher than in 2019.

The government's investments to create a Canada-wide system for $10-a-day child care are supporting higher labour force participation, empowering women to pursue both motherhood and a career, and helping to ensure that every child in Canada has the best possible start in life. Currently eight provinces and territories are delivering regulated child care at an average cost of $10-a-day or less, and the others have reduced fees by at least 50 per cent.

The federal government's $10-a-day child care system is saving families across Canada thousands of dollars per child per year with some families saving up to $14,300 per child, per year, lowering the costs of working, and in turn boosting economic growth and incomes as more parents, especially mothers, enter the workforce.

Since December 2021, the federal government's $10-a-day child care system has helped reduce the consumer price index for child care services by 28 per cent, compared to an increase of 16 per cent over the same time period for the United States (Chart 22).

Supported by affordable childcare, the labour force participation rate of women with young children has increased by close to 4 percentage points between 2019 and 2023 (Chart 23), a pace of increase that is more than double that over the prior five years. At almost 80 per cent in 2023, the participation rate of women with young children in Canada was over 10 percentage points higher than in the U.S.

For the Canadian economy, $10-a-day child care could boost GDP by 1.1 per cent over the long-run, assuming that the labour force participation rate of women outside of Quebec increases to the level of that for women in Quebec, where low-fee child care has been available since 1997.

330,000 Jobs Created in the Last Year

A strong labour market is the foundation for improving living standards of Canadians. Even as the Bank of Canada raised interest rates to fight inflation, employment held up and exceeded expectations of private sector economists. In November, the economy added 51,000 jobs, driven by new full-time jobs. Over the past 12 months, the monthly average number of jobs created has been over 27,000 jobs per month, for a cumulative 330,000 jobs during this period. This pace of job creation is an improvement from the solid 22,000 average monthly gain in 2019, when the unemployment rate was at a historically low level of 5.7 per cent and inflation ran close to 2 per cent.

Canada's employment recovery from the pandemic has outpaced the recovery following the 2008-09 global financial crisis. Despite the unprecedented shock of the pandemic, surging inflation, and interest rates still above neutral, the current unemployment rate stands at 6.8 per cent. This is not only significantly below the post-financial crisis peak of 8.7 per cent in August 2009 but also lower than at any point between 2009 and 2013, highlighting the resilience of the Canadian labour market.

Employment has increased by 7.4 per cent since 2019, the strongest increase in the G7 (Chart 24). This means over 1.4 million more Canadians are employed than before the pandemic, primarily in full-time jobs and high-paying industries (Chart 25).

While the labour market has continued to add jobs in 2024 (Chart 26), job growth eased over the summer and the unemployment rate rose from a low of 5 per cent in early 2023 to 6.8 per cent in November 2024 (Chart 27). The increase largely reflects challenges for newcomers and youth, who are taking longer to find work (Chart 28), which is why the government has introduced a two-year pause on population growth from immigration. Private sector economists expect the unemployment rate to remain below the 2009 peak, with it expected to be 6.6 per cent by the end of 2025.

Investing in Stronger Economic Fundamentals  

Canada's rapid recovery from the pandemic recession—compared to both its recovery from the 2008-09 global financial crisis and peer countries' pandemic recoveries—is no accident. The federal government put in place emergency measures to support Canadians and businesses through the pandemic and has since built the foundation for stronger growth. These actions have underpinned Canada's economic recovery and will continue to be critical to grow Canada's productive capacity during a time of global economic uncertainty.

To achieve a stronger and more productive economy with improving living standards, Canada is focused on creating an environment where businesses want to invest and create good jobs.

First, our generational social safety net investments are ensuring Canadians are equipped for success in the workforce and in life. Stronger social services that make life more affordable, like $10-a-day child care, help parents—particularly mothers—join the workforce. Free dental care and free prescription medications help workers focus on what they do best, rather than worrying about bills for essential health care, or foregoing that care and getting sicker. These efforts to reduce costs make Canada a more attractive place to live, giving businesses confidence they will be able to hire the talent they need.

Second, the government is securing Canada's AI advantage and investing nearly $5 billion in Canadian brainpower. We are improving Canada's science and research advantage, including bolstering Canada's AI strategy to secure our position at the forefront of global AI development. This includes $2 billion in funding for Canadian researchers and businesses to access the computational power they need, to help catalyze the development of Canadian-owned and located AI infrastructure, and $350 million to support the adoption of AI within critical sectors and by small- and medium-sized businesses. The government's investment in science and technology expands far beyond AI, with investments in strategic research infrastructure to capitalize on our world class universities and research talent. This Fall Economic Statement further boosts growth and innovation by providing incentives for additional investment, particularly by extending the Accelerated Investment Incentive and by making the Scientific Research and Experimental Development tax incentive program more generous for Canadian businesses.

Third, the government is protecting the Canadian economy from geopolitical uncertainty. By strengthening trading relationships with trusted allies, investing in stronger manufacturing growth in North America, and putting tariffs on the imports of goods from China that benefit from unfair, non-market policies and practices and are produced without robust labour and environmental standards, Canada is protecting its economy, and helping to build a strong and resilient North American economy. Our $6.4 billion investment to build the new Gordie Howe Bridge, connecting Detroit and Windsor—the home of North America's automotive industry—is just one example of our investments to strengthen trade. The government is taking a Team Canada approach to protecting and enhancing our greatest trading partnership, including re-convening the Canada-U.S. Cabinet Committee and working with provinces and territories.

Fourth, the government's major economic investment tax credits for clean energy and decarbonizing technologies are kickstarting Canada's industrial transition and growth as an energy superpower—a critical strength at a time when AI means global demand for power is growing. The federal government has committed over $160 billion to its net-zero economic plan, including $94 billion through its suite of major economic investment tax credits, which are attracting investment and creating jobs. Regulatory burdens for businesses that want to invest in Canada are being reduced, including for those seeking to build large projects, which will be critical to the Canada's economic growth. These investments are expected to spur long‑term investment in clean, low‑emissions technologies and industries, in line with our significant long‑term comparative advantages.

These targeted actions are enhanced by the government's policies to improve the overall competitiveness of Canada's economy. The completion of the Trans Mountain Expansion Project is opening new market opportunities, raising oil exports, and supporting capital expenditures, in turn generating greater federal and provincial revenues. We're also boosting market access for Canadian liquified natural gas (LNG), through LNG Canada and Cedar LNG, both on the Pacific Coast in Kitimat, British Columbia with access to Asian markets. Further, the government is cutting red tape and modernizing regulations, including removing barriers to interprovincial trade and foreign credential recognition, and developing innovative regulatory approaches, such as regulatory sandboxes, to unlock businesses' potential.

The government's investments are strengthening Canada's economic fundamentals and focused on increasing productivity, leading to stronger business investment. Combined with expanding labour force participation through $10-a-day child care, federal investments are setting the stage for faster, non-inflationary economic growth in the years ahead.

Accelerating Flows of Private Capital into Canada

To drive the Canadian economy towards its full potential, the government's economic plan is helping attract significant foreign direct investment into Canada. Crowding in private capital—from Canada and abroad—is a government priority.

Among the G7, Canada is receiving the most foreign direct investment per capita (Chart 29). In February 2024, Bloomberg confirmed Canada's position of having the strongest EV supply chain potential in the world, a key emerging sector which has attracted more than $40 billion in investment in the last four years.

Investments are flowing into sectors critical to Canada's future economic growth, including:

• Honda investing approximately $15 billion to create Canada's first comprehensive EV supply chain, located in Ontario;
• BHP investing $14 billion in the development of a world-leading low-emissions potash mine in Saskatchewan;
• Dow Canada investing $8.9 billion in the world's first net-zero emissions integrated ethylene cracker and derivatives facility in Alberta;
• Volkswagen investing $7 billion to establish its first overseas EV battery manufacturing plant in St. Thomas, Ontario;
• Stellantis and LG Energy Solution investing over $5 billion through a joint venture in a new facility for the manufacturing of EV batteries in Windsor, Ontario;
• Strathcona Resources contributing up to $2 billion alongside the Canada Growth Fund to build carbon capture and sequestrations (CCS) infrastructure on Strathcona's oil sands facilities across Saskatchewan and Alberta; and,
• Imperial Oil investing $720 million in the largest renewable diesel facility in Canada located near Edmonton, Alberta.

The latest data show Canada attracted $23.4 billion in net foreign direct investment in the third quarter of 2024. Between April and September 2024, this figure was $60 billion—the strongest two-quarter performance in more than 15 years. Investment intention signals from businesses indicate a significant increase in capital expenditures, especially those in sectors critical to reaching net-zero (Chart 30). Much of this is driven by investment from abroad as global businesses increase the flow of capital into Canada, a sign of business confidence. These trends will be bolstered by the renewal of the Accelerated Investment Incentive and enhancements to the Scientific Research and Experimental Development tax incentive program proposed in this Fall Economic Statement.

It is not only large investors who are finding Canada as an attractive investment destination. In November, Canadian small business optimism rose four points to 59.7 per cent, marking the highest long-term confidence level since mid-2022 and approaching the historical average of 60 per cent.

The Canadian Stock Market is Outperforming Peers

Volatility in global equity markets has risen in recent months amid growing uncertainty over potential trade tensions, a broader conflict in the Middle East, and weaker global growth. Despite this volatility, the Canadian stock market has remained resilient and has outperformed many of its peers (Chart 31). Today, Canada's stock market capitalization exceeds that of the U.K., France, Germany, and Australia (Chart 33).

The solid growth in Canadian equity prices and market capitalization means that Canadian companies have easier access to capital for investment and at lower cost. Moreover, Canada's strong equity market performance in part reflects the attractiveness of the Canadian economy to foreign investors, which has been reflected by strong growth in inward foreign direct investment, and Canada's larger market compared to many global peers.

Canada's attractiveness for investors is also reflected in the growing importance of the Canadian dollar in foreign reserves, with it becoming the world's fifth largest reserve currency in 2023 after seeing the strongest growth among major currencies since 2015, surpassing the Chinese renminbi and continuing to lead the Australian dollar (Chart 32).

Canada's currency has become a more significant global reserve currency as Canada's economy benefits from strong economic fundamentals, robust institutions, rule of law, a sound banking system, and a strong fiscal position that includes a AAA rating. Being a more significant reserve currency has many advantages. It increases demand for Canadian securities, including government bonds, thereby reducing interest rates and thus public debt charges. As global demand for the Canadian dollar supports borrowing, it allows Canada to make investments to secure its prosperity.

Amid this rising importance in global markets, our exchange rate has strengthened against the currencies of our main trading partners since the pandemic. This is with the notable exception of the U.S. dollar which has seen broad-based strength as the growth and inflation outlook both look stronger in the U.S. economy and as financial markets assess the potential new policies of the incoming administration. By the second quarter of 2024, official foreign exchange holdings of Canadian dollars amounted to $420 billion, which has also been reflected in the steady rise in foreign holdings of Canadian bonds in recent years.

Boosting Construction Productivity and Restoring Housing Affordability

Housing affordability in Canada is at its most challenging in decades, affecting homebuyers and renters across much of the country. However, while Canadians have faced the fastest growth in rental prices in a generation, asking rents for new leases are now declining in many markets. The government's reforms to insured mortgages are also set to make homeownership more affordable by expanding eligibility for 30-year mortgage amortizations and helping more Canadians qualify for a mortgage with a downpayment below 20 per cent.  

To further improve affordability, the federal government is taking action to reduce Canada's housing shortage by both unlocking new housing supply and reducing demand with a two-year pause on population growth from immigration. On the supply side, the federal government has taken numerous steps to increase housing construction—including making low-cost capital available, improving the economics of building rentals, increasing investment, and attracting and retaining construction workers.

These efforts are paying off. Despite a challenging backdrop and lingering supply chain congestion, homebuilding activity has remained resilient in 2024, with housing starts above their pre-pandemic level in all regions of the country (Chart 34). The strength in starts has been driven in large part by rental construction (Chart 35), which is currently more than double its pre-pandemic pace. Recently, there are signs that rents for new leases are falling in major cities, and are expected to fall further. In addition to strong housing starts, housing completions have picked up.

However, declining residential construction productivity across the country, partly a product of supply chain congestion and labour market challenges, is holding back the sector's ability to build homes and infrastructure and weighing on Canada's overall productivity performance. Improving productivity in residential construction, as well in the broader construction sector (including factories and commercial structures), could have a significant positive impact on Canada's overall productivity. If productivity in the overall construction sector had kept pace with the rest of the economy since 2019, it would have increased GDP per capita by about one per cent in 2023.

The federal government's ambitious housing plan aims to boost residential construction productivity through investments in innovative approaches to homebuilding like prefabricated housing factories, mass timber production, panelization, 3D printing, and pre-approved home design catalogues, as well as training and recruiting the next generation of skilled trades workers.

Over time, the federal government's actions to build more homes, combined with slowing population growth as the government reduces the volume of temporary resident arrivals, will improve Canada's structural housing supply shortage—particularly in the rental market—and set the stage for sustained affordability improvements. Although government programs will help increase supply, overcoming structural capacity constraints in the housing sector requires significant collaboration between provincial, territorial, and municipal governments and the private sector. Cutting red tape, increasing density, and avoiding self-defeating measures like oversized municipal development charges is essential.

Balancing Immigration with the Supply of Homes and Jobs

Immigration plays a crucial role in Canada's economic success. As the economy reopened following the pandemic, the government acted decisively to address the pressing need of businesses and the economy for workers. However, the rapid pace of immigration has led to an unsustainable rate of population growth, resulting in economic distortions, such as elevated housing prices. Recognizing the need for a more balanced approach, the government has taken significant and necessary steps to adjust immigration levels, ensuring that population growth aligns with the capacity of our economy and infrastructure. This course correction is essential to maintaining the long-term prosperity of Canadians, and newcomers, who expect and deserve a stable, well-functioning economy.

In response to the evolving needs of our country, the 2025-2027 Immigration Levels Plan is right-sizing population growth to alleviate pressures on the housing and labour markets, infrastructure, and social services. This will help achieve well-managed, sustainable growth in the long term, as well as set newcomers up for success.

The Immigration Levels Plan is pausing Canada's strong population growth for two years, as the number of temporary residents in the country is reduced by about 900,000, before returning to a sustainable population growth rate of 0.8 per cent in 2027. This represents a necessary recalibration in population growth, returning to its pre-pandemic solid growth path following the surge over the past two years (Chart 36).

Together with the government's historic investments in new housing supply, this recalibration in population growth will help reduce Canada's housing supply gap and set the stage for improved affordability. Overall, the Immigration Levels Plan will reduce demographic demand for housing by 670,000 homes by the end of 2027, according to Department of Finance calculations, allowing supply to catch up. The Parliamentary Budget Officer estimates that the Immigration Levels Plan could reduce Canada's housing supply gap by 45 per cent by 2030. Many private sector economists have also predicted slower population growth will take pressure off the housing market and allow prices to ease, particularly in the rental market.

In addition to improving housing affordability, slower population growth is expected to enable growth in GDP per capita to accelerate throughout 2025 to 2027. As a result of our efforts to address fraudulent applications and degree-mill colleges, along with reductions in the number of temporary foreign workers and the Immigration Levels Plan, GDP per capita and productivity are expected to improve. This rebound will occur as the number of new arrivals stabilizes, and as newcomers continue to integrate more fully into the workforce.

Moreover, while strong labour supply growth initially helped ease labour shortages, labour supply growth has remained very strong even as hiring by businesses has eased. This has contributed to higher unemployment, especially among youth and newcomers. The Immigration Levels Plan will help recalibrate labour supply growth with the pace of hiring, lowering the unemployment rate.

While reducing the volume of immigrants may create some temporary challenges for some businesses, the Canadian economy will see continued robust GDP growth. Newcomers and youth will be increasingly able to better integrate into the labour market. Businesses are expected to respond by making productivity-enhancing investments, which could deliver longer-term economic benefits.

A Resilient Economy Prepared for Uncertainty Ahead

The outcome of the U.S. election has significant implications not only for the United States but also for the global community, and importantly, Canada. For Canada, this brings both challenges and opportunities.

In the context of heightened geopolitical uncertainty, Canada's economic and fiscal strategy is rooted in resilience, adaptability, and prudent policy management. History has shown that the Canadian economy can weather significant disruptions, such as the COVID-19 pandemic, the global financial crisis, and various geopolitical events through coordinated efforts by all orders of government.

Recognizing the global nature of many uncertainties—such as geopolitical tensions—the government will continue to prioritize international cooperation and policy coordination to enhance stability and secure Canada's economic future.

The immediate priorities will be to strengthen our deeply integrated trading relationship and to work collaboratively with the U.S. to continue to secure our shared border. Canada and the U.S. remain aligned in protecting workers from the effects of China's deliberate overcapacity strategy, and ensuring supply chain resilience in response to China's use of non-market policies and practices to enhance its strategic position in global supply chains.

As the world's tenth-largest economy, Canada's prosperity depends on open trade, multilateral institutions and a rules-based international order. However, in an increasingly mercantilist global environment, economic security will play a more central role. The government will adapt its approach to thrive in this new context, placing greater emphasis on bilateral and plurilateral agreements to safeguard Canada's long-term economic interests.

Above all, we must recognize that Canada is engaged in a fierce global competition for capital investment and the jobs it creates. Ensuring that Canada secures its fair share of this investment is paramount.

Canada brings significant strengths to meet the challenges and opportunities ahead. We have one of the best educated workforces in the OECD, a safe and cohesive society underpinned by strong institutions, and a thriving technology sector. Our economy is supported by a robust manufacturing base and abundant energy resources, spanning oil and gas, nuclear power, hydroelectricity, and critical minerals. Our geography is a strategic advantage, with access to three coasts and key trade corridors linking us to global markets. As part of a prosperous and secure continent, Canada also benefits from a modernized trade agreement that facilitates growth and economic cooperation.

The past three decades—beginning with the fall of the Berlin Wall and marked by China's entry into the World Trade Organization—ushered in a period of economic globalization, characterized by hopes for enduring global stability and economic integration. However, this era has now come to an end. China's policy of intentional over-capacity has been recognized to have eroded key manufacturing sectors in the industrialized world, and the stable, well-paid, middle class jobs they provided. Global financial imbalances are an increasing area of focus. Explicitly or implicitly, more countries are pursuing mercantilist policies.

While the challenges ahead are significant, Canada is united, forward looking, and well equipped to navigate them and seize new opportunities. Just as its strong fiscal position and economic fundamentals gave Canada the firepower to fight COVID, Canada today has the resources to respond to whatever challenges an uncertain world presents. Our government's focus will be on fostering resilience and growth in the face of these uncertainties. Details on our strategic approach are outlined in Chapter 2.4.

2. Canadian Economic Outlook

Private Sector Economists Expect Stronger Growth

The average of private sector forecasts has been used as the basis for economic and fiscal planning in Canada since 1994, helping to ensure objectivity and transparency, and introducing an important element of independence into the government's economic and fiscal forecast.

The Department of Finance surveyed a group of 11 private sector economists in September 2024. In the survey, private sector economists have revised up the 2024 growth outlook amid a more resilient Canadian economy (Chart 37).

Economists expect moderately-below-potential growth in 2024, before it strengthens to around 2 per cent in the second half of 2025 with falling interest rates and the associated recovery in household and business spending. Solid growth in the U.S. will also underpin growth in exports. Overall, private sector economists expect growth of 1.3 per cent in 2024 and 1.7 per cent in 2025, compared to 0.7 per cent and 1.9 per cent, respectively, in Budget 2024 (restated for historical revisions). While population growth is assumed to slow, meaning fewer new consumers, this will be mitigated by faster growth in GDP per capita.

With labour force growth outpacing employment growth, the economists have slightly revised up their near-term outlook for the unemployment rate. They expected the unemployment rate to rise to 6.9 per cent in the fourth quarter of this year before stabilizing and then easing to 6.6 per cent by the end of 2025. The unemployment rate is expected to average 6.4 per cent in 2024 and 6.7 per cent in 2025, declining to an average of 6.2 per cent in 2026, before reaching 5.7 per cent by 2029. Since the economists were surveyed, the unemployment rate has increased modestly to an average of 6.7 per cent so far in the fourth quarter, slightly below expectations of private sector economists.

Private sector economists expect CPI inflation to remain at about 2 per cent over the rest of this year, averaging 2.5 per cent for the year as a whole, the same as projected in Budget 2024, and 2 per cent in 2025 (compared to 2.1 per cent in Budget 2024). Inflation is expected to remain close to 2 per cent over the 2025-2029 projection period.

Short-term interest rates have come down faster than private sector economists anticipated in September. In the survey, short-term interest rates were expected to decline from about 5 per cent on average in the first half of 2024 to 3.7 per cent by the end of the year (20 basis points lower than Budget 2024), 3 per cent by mid-2025, and 2.7 per cent by the end of 2025. Short-term rates are expected to average 4.4 per cent in 2024 and 2.9 per cent in 2025, about 10 basis points lower on average per year compared to Budget 2024. Short-term interest rates are then expected to settle at about 2.8 per cent over the remaining years of the forecast horizon (about 10 basis points higher than Budget 2024). Private sector economists have also revised down their outlook for long-term interest rates by about 10 basis points on average this year and next year (Chart 38). Long-term rates in Canada have closely tracked those in the U.S. as views about the U.S. economic outlook have fluctuated throughout 2024. Looking ahead, long-term rates are expected to increase from 3.1 per cent in 2025 to 3.5 per cent by 2029 (similar to Budget 2024) as both the Canadian and U.S. economies converge to potential growth rates.

Reflecting upward revisions to the near-term outlook for real GDP, the level of nominal GDP is expected to be higher by $17 billion in 2024 and by $9 billion, on average, per year from 2025 through 2028.

The Department did not re-survey private sector economists following the U.S. election given the continued high levels of uncertainty surrounding the implications for both the North American and global economies. The potential impact of these developments on the economic outlook remains unclear. Publicly available forecasts from the private sector have shown little change since the September survey, suggesting that the survey remains a reasonable baseline. To support prudent economic and fiscal planning amidst heightened global uncertainty, the potential implications of recent developments are examined in greater detail in the economic scenario analysis below. 

Economic Scenario Analysis

The September 2024 survey of private sector economists provides a reasonable basis for economic and fiscal planning. The economic outlook nevertheless remains clouded by a number of key uncertainties, which could impact the trajectory of inflation, interest rates, and economic growth.

Inflation, the labour market, and indicators of real economic activity have all evolved close to what was expected by private sector economists in the September survey, with inflation remaining around 2 per cent and growth below potential. The unemployment rate of 6.8 per cent in November is below the peak of 6.9 per cent that private sector economists had expected for the fourth quarter.

Internationally, U.S. growth has been stronger than expected, while domestic demand in China has weakened. Oil prices have faced downward pressure and have remained at about $70 per barrel since September, partly due to easing global demand and potentially large increases in supply. Financial markets have seen both a rise in equity market prices and an increase in long-term interest rates, especially in the U.S. Meanwhile, the Canadian dollar, much like other global currencies, has been under pressure from a strong U.S. dollar since late September.

Changes to immigration policies, largely anticipated prior to the survey, still carry some uncertainty regarding their economic impact, but private sector analysis published since the announcement of the Immigration Levels Plan points to offsetting impacts of lower labour supply with a faster recovery in GDP per capita, a faster decline in unemployment, and better alignment of demand and supply in the housing market.

The outlook provided by the September survey depends on a number of key factors that remain difficult to predict. Canada may continue to benefit from robust growth in the U.S., driven by rising equity markets and increasing confidence among U.S. households and businesses. However, metrics of trade policy uncertainty have surged to levels not seen since 2018, raising concerns about potential disruptions to global trade and investment dynamics. The heightened level of uncertainty could dampen business investment and confidence, as well as economic activity and employment in Canada. 

Protecting Canada's economy from trade disruptions caused by geopolitical tensions and conflicts is a key priority for the government, with a focus on fostering a stable and positive business investment environment. Canada remains steadfast in its commitment to collaborate with the U.S. on mutual interests, ensuring that both countries continue to thrive together. Canada is always prepared to take strong action in defence of the national interest. To strengthen this work, the government has re-established the Cabinet Committee on Canada-U.S. Relations, ensuring a coordinated, whole-of-government approach to managing the bilateral relationship. This initiative also facilitates ongoing engagement with business leaders and workers across key economic sectors, ensuring that Canada's economic interests are effectively represented.

To facilitate prudent economic and fiscal planning, the Department of Finance has developed scenarios that incorporate uncertainties around the outlook and consider slower and faster growth tracks.

The incoming U.S. administration's economic agenda could have different impacts for the economic outlook for both North America and the rest of the world. Such outcomes are only partly accounted for in the scenarios; on the upside through stronger U.S. growth; and on the downside through lower business and consumer confidence and investment due to geopolitical tensions. Given the importance of trade to the Canadian economy, the uncertainty surrounding North American and global trade policies suggests that the balance of risks to growth are tilted to the downside. This is reflected in the scenarios, where the downside risks result in a larger drag on growth compared to the boost in the upside scenario.

The downside scenario sees a prolonged period of subdued growth in Canada as the impact from lower interest rates takes longer to support growth, consumer and business sentiment remain subdued, and the labour market weakens further. Confidence is further weighed down by heightened uncertainty globally around geopolitics and renewed disruptions to global trade, creating a chill on investment. These factors lead to weaker consumption and a smaller rebound in housing market activity. Lower global demand also leads to lower oil prices. These developments result in slower economic growth in Canada (Chart 39). Overall, the level of nominal GDP in Canada is $42 billion below the survey, on average per year, in the downside scenario (Chart 40).

In contrast, the upside scenario sees further improvement in the supply side of the economy both globally and in Canada, including a greater reversal of Canada's recent decline in real GDP per capita. This allows central banks, including the Bank of Canada, to increase the pace of monetary policy easing thereby getting rates to unrestrictive territory faster, leading to stronger demand and improved growth. Higher consumer confidence, along with generally resilient household finances, and a normalization of higher saving rates, supports robust consumer spending, while lower rates lift business investment. Globally, these developments translate into higher commodity prices, which Canadian producers benefit from on global markets. These developments result in economic growth picking up faster than expected. Overall, the level of nominal GDP is $34 billion above the survey, on average per year, in the upside scenario.

3. Fiscal Outlook

Canada's Responsible Economic Plan

Careful and responsible fiscal management has put Canada in an enviable fiscal position relative to our global peers. The government's responsible economic plan has delivered tangible results—supporting the Bank of Canada's effort to bring down first inflation, and now interest rates, and enabling important investments in housing, child care, health care, dental care, and pharmacare to support Canadians, while also making critical investments in an innovative economy, including more power generation, that will boost long-term prosperity.

The 2024 Fall Economic Statement upholds the government's commitment to responsible fiscal management, through targeted investments that will provide short-term relief, while laying the groundwork for a more productive economy in the years to come. With new measures in the 2024 Fall Economic Statement, policy actions taken since Budget 2024, and incorporating the results of the September 2024 survey of private sector economists, a deficit of $48.3 billion, or 1.6 per cent of GDP, is projected in 2024-25. In 2026-27, the deficit is expected to fall below 1 per cent of GDP, fulfilling the government's ongoing fiscal objective. By the end of the forecast horizon in 2029-30, a smaller deficit of $23 billion, or 0.6 per cent of GDP, is projected (Table 3).

An important fiscal sustainability metric—and the government's fiscal anchor—is to maintain a declining federal debt-to-GDP ratio. The 2024 Fall Economic Statement respects this anchor, with a debt-to-GDP ratio projected to decline in each and every year of the forecast horizon, from 41.9 per cent in 2024-25, down to 38.6 per cent in 2029-30. 

Alternative Economic Scenarios Analysis

In the upside scenario, the budgetary balance would improve by an average of approximately $9.2 billion per year, and the federal debt-to-GDP ratio would fall to 41.8 per cent in 2024-25 from 42.1 per cent in 2023-24, and be 1.6 percentage points lower than the 2024 Fall Economic Statement forecast in 2029-30 (Chart 41).

In the downside scenario, the budgetary balance would deteriorate by an average of approximately $6 billion per year, and add 1.3 percentage points to the federal-debt-to-GDP ratio in 2029-30 compared to the same year of the 2024 Fall Economic Statement forecast. Under the downside scenario, the deficit would remain well below 1 per cent of GDP by the end of the forecast horizon, and the federal debt-to-GDP ratio would still be lower in 2029-30 than it is today. Details of the government's fiscal outlook and the fiscal impact of the scenarios can be found in Annex 1.

In 2023-24, the government is projected to record significant unexpected expenses related to Indigenous contingent liabilities. Absent these expenses, and allowances for COVID-19 pandemic supports, the 2023-24 budgetary deficit would have been approximately $40.8 billion, compared to the Budget 2024 projection of $40 billion. However, the higher-than-anticipated provisions for these two categories add accounting charges of $21.1 billion. The federal debt-to-GDP ratio in 2023-24—the most important metric—is 42.1 per cent, as forecast in Budget 2024. More information on expected results for the fiscal year that ended March 31, 2024, can be found in the Economic and Fiscal Developments section of Annex 1.

The 2024 Fall Economic Statement includes $24.2 billion in new investments in priority areas such as reducing everyday costs and building more homes; and investing to raise wages through net-zero growth, bolster productivity, and boost innovation (Chart 42). Some of the most significant investments are:

• $17.4 billion to extend the Accelerated Investment Incentive;
• $1.1 billion to boost the Scientific Research and Experimental Development tax incentive program; and,
• $1.6 billion for a Tax Break for All Canadians.

Overall, new investments in the 2024 Fall Economic Statement build a foundation for sustainable growth and equitable prosperity across generations and sectors.

Maintaining Canada's Responsible Fiscal Anchor

The government is committed to its fiscal anchor: to reduce the federal debt-to-GDP ratio over the medium-term. This metric is key not only for fiscal sustainability, but also to preserve Canada's AAA credit rating, which helps maintain investors' confidence and keeps Canada's borrowing costs as low as possible.

Fiscal Sustainability

In the 2024 Fall Economic Statement, the government's financial decisions were guided by an important goal: to maintain the fiscal anchor and achieve the ongoing fiscal objective set out in Budget 2024 to keep the deficit under 1 per cent of GDP in 2026-27 and future years. Specifically:

• The deficit-to-GDP ratio is expected to fall to under 1 per cent of GDP in 2026-27, consistent with the ongoing fiscal objective set out in Budget 2024.
• The federal debt-to-GDP ratio in 2023-24 was 42.1 per cent, exactly as forecast in Budget 2024, reflecting stronger than expected economic growth after historical revisions. This ratio for 2024-25 is forecast to decline to 41.9 per cent, also matching Budget 2024 projections. This is a meaningful improvement from 47.2 per cent in 2020-21, at the peak of the pandemic. Since then, the federal debt-to-GDP ratio has declined in nearly every year, and the 2024 Fall Economic Statement forecasts a continued decline every single year. Canada's fiscal performance on net debt as a share of the economy is the strongest in the G7.
• Public debt charges as a share of the economy are expected to continue to remain near historically low levels (Chart 44).

Moving forward, the government remains committed to its responsible economic plan, and as part of this, will continue to focus on the objective of maintaining the deficit below 1 per cent of GDP beginning in 2026-27 and future years—in addition to its fiscal anchor.

Canada's lower interest rate advantage

Canada's cost of borrowing is lower than both the United States and the United Kingdom—a reflection of our prudent fiscal stewardship. Chart 45 illustrates the impact on Canada's public debt charges in a scenario where the higher interest rates experienced in these two countries is applied. If facing the same interest rates as found in the United States, Canada's federal public debt charges could be an average of $16.5 billion higher per year over the medium term, reaching a level of $89.5 billion by 2029-30, or 2.4 per cent of GDP. Similarly, if facing the same interest rates as found in the United Kingdom, Canada's federal public debt charges could be $15 billion higher per year, reaching a level of $87.9 billion by 2029-30.

The federal government provides more than $100 billion in annual financial support to provincial and territorial governments on an ongoing basis. This amounts to a substantial federal transfer of $2,490 per capita to the provinces and territories in 2024-25 (Chart 46). These funds support the provision of programs and services, including specific policy areas such as health care, post-secondary education, social assistance and social services, early childhood development, and child care. The federal government provides a further $2.4 billion to municipalities through the Canada Community-Building Fund (Chart 47), allowing local communities to make strategic investments in essential infrastructure, such as roads and bridges, public transit, drinking water and wastewater infrastructure, and recreational facilities.

Preserving Canada's Fiscal Advantage

The 2024 Fall Economic Statement's forecast shows the federal debt-to-GDP ratio lower than its recent pandemic peak and declining in 2024-25 and throughout the remainder of the forecast—consistent with the government's fiscal anchor. The government's economic plan is also projected to remain fiscally sustainable over the longer term.

Similar to the Parliamentary Budget Officer's assessment, modelling scenarios developed by the Department of Finance based on a set of reasonable economic and demographic assumptions show the federal debt-to-GDP ratio declining from 2024-25 over the entire long-term projection horizon (Chart 48). This is despite adverse demographic trends, including an aging population. Sensitivity analysis around these long-term fiscal projections also indicates fiscal sustainability would be preserved under the downside scenario (see Annex 1).

World-Leading Fiscal Responsibility

Canada's projected net debt-to-GDP ratio for 2024 is just 14.4 per cent, compared to the G7 average, excluding Canada, of 103.8 per cent. In fact, Canada's net debt burden is still lower today than in any other G7 country prior to the pandemic—an advantage that Canada is forecasted to maintain through 2026 (Chart 49 and Table 4). Canada's economic plan has also delivered the fastest fiscal consolidation in the G7 since the depths of the pandemic, resulting in Canada having the smallest deficit in the G7 as a share of the economy this year, tied with Germany, and over the next two years (Chart 50 and Table 4).

Notes: The internationally comparable definition of "general government" includes the central, state, and local levels of government, as well as social security funds. For Canada, this includes the federal, provincial/territorial, and local and Indigenous government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan.

Source: International Monetary Fund, October 2024 Fiscal Monitor.

Canada's fiscal situation compares very well to a broader group of 30 other advanced economy peers, posting world-leading low deficit- and net debt-to-GDP ratios (Charts 51 and 52). This represents a sharp contrast with the country's fiscal situation during the 1980s and early 1990s when the accumulation of relatively large deficits led to a rapid rise in Canada's net debt burden and a deteriorating fiscal advantage relative to many advanced economy peers.     

Notes: The internationally comparable definition of "general government" includes the central, state, and local levels of government, as well as social security funds. For Canada, this includes the federal, provincial, territorial, and local and Indigenous government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan. "30 Other Advanced Economies" are: Australia, Austria, Belgium, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, New Zealand, Netherlands, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States. For greater readability, budgetary balance data points for Ireland in 2010 (-32.1) and for Iceland in 2016 (12.5) have been excluded from the other advanced economies range calculations. Norway, a statistical outlier due to its significant net asset position (+129.1 of GDP in 2024), has been excluded from the group.

Source: International Monetary Fund, October 2024 Fiscal Monitor.

Underpinning Canada's long tradition of fiscal responsibility are AAA credit ratings from Moody's, S&P, and DBRS Morningstar. Canada is one of only two G7 economies, along with Germany, to have an AAA rating from at least two of the three major global credit rating agencies. Canada's AAA credit ratings help maintain investors' confidence and keep Canada's borrowing costs as low as possible.