CANADA -Passport GMID

Canada: Country Profile

11 Feb 2011

Real economic growth is likely to slow slightly in 2011 following a strong rebound in 2010. Domestic demand

will weaken somewhat owing to household debt and a cooling housing market.. A strong Canadian dollar is

likely to restrain exports. As Canada's baby-boomers enter retirement, the dependency ratio will rise and the

working-age population will shrink without a net inflow of migrants. The country's potential rate of growth

could fall as the workforce ages.

KEY POINTS
Real GDP grew by 2.9% in 2010 and gains of 2.3% are forecast for 2011. Domestic
demand will slow owing to household debt and a cooling housing market.
Real growth of private final consumption was 3.4% in 2010 while gains of 2.8% are
predicted for 2011.
Immigration accounts for more than 50% of Canada's population gains and will be
responsible for virtually all growth in the labour force in the future. Roughly two-
thirds of the foreign-born live in Canada's three largest metropolitan areas – Toronto,
Montreal and Vancouver.
The budget deficits recorded in 2009 and 2010 were the first in several years. Officials
plan to eliminate all shortfalls by 2015.
FACTS
Area

9,922,385 square kilometres

Currency

Canadian dollar (C$ = 100 cents)

Location

Canada occupies virtually the entire northern half of the North American continent.
Capital

Ottawa
GOVERNMENT
Head of State

HM Queen Elizabeth II represented by Governor-General David Johnston

Head of Government

Stephen Harper (2006)

Ruling Party

The Conservative Party leads the government.

Political Structure

Canada is a federation of 13 provinces and territories, each of which exercises considerable degree of political

autonomy. The Northwest Territories were divided in 1999 so as to create an Indian territory, Nunavut.
Parliament consists of the House of Commons in Ottawa with 310 elected members from individual

constituencies and the Senate which has 104 members appointed by the Prime Minister. A governor-general

represents the monarch.

Last Elections

Parliamentary elections were held in October 2008. The Conservative Party won 143 seats while the Liberal

Party took 76 seats. The left-of-centre New Democratic Party took 39 seats and the Bloc Québéois won 50

seats. Two independents were elected.

Political Stability and Risks

The division between eastern and western Canada is a long-standing one. To reduce the tension between

provinces, the federal government has agreed to transfer C$41 billion to the provinces over the next ten years.

Each province, however, will have to launch their own drug strategy, improve home care and bolster medical

services. In addition, the provinces must account for how the money is spent.

A financial crunch faces virtually all Canadian cities. With tax collection left to the federal government and the

provinces, the cities have only limited means of raising revenue. As a result, urban infrastructure is

deteriorating. Experts estimate that the cities need an additional C$60 billion.

Voters in the northwestern part of Ontario want to leave the province and become part of Manitoba. They

regard the distant provincial government as uninterested and hope to gain access to cheaper energy if they are

part of Manitoba.

Canada's policy on aboriginals is a frequent source of tension. Land claims, often involving natural resources,

are the most common source of contention.

International Issues

Canada's trade with the USA amounts to over US$500 billion a year and trade disputes are common. Officials

are concerned that American protectionism has grown since the recession and threaten retaliation. A free-trade

agreement with the EU is under negotiation. Washington is also highly critical of Canada's lax border controls.

Canada has several minor maritime boundary disputes with the USA and an uncontested dispute with Denmark

over Hans Island sovereignty between Ellesmere Island and Greenland. Canada claims sovereignty over the

entire Arctic archipelago but the USA has never recognised this claim. The Americans consider the Northwest

Passage to be an international waterway.

Government Finance

The government ran a deficit of about C$85 billion in 2009 (the first in several years) when officials embarked

on a fiscal stimulus programme to help the weakening economy. The stimulus was the equivalent of 4% of

GDP spread over 2009 and 2010. Officials plan to eliminate the deficit entirely by 2015.

Public debt totalled C$1,326,310 million in 2010, equivalent to 81.8% of GDP.

Spending on social security and welfare accounted for 30.0% of all government expenditures in 2010 followed

by spending on health (19.9%). The real value of government spending rose by 23.2% in 2005-2010.
ECONOMY
Economic Structure and Major Industries
Agriculture employs just 2.2% of GDP but the sector's exports provide an important boost to the economy.

Output of corn, soya and poultry are all growing steadily but wheat production is stagnating. Firms are under

pressure to improve productivity to maintain competitiveness but many are overburdened with debt. Gains in

efficiency will be essential to cope with population ageing. The government will provide up to US$1 billion in

loans for farmers over the next five years to ease credit restraints. After contracting in 2009, the government

predicts real gains of 3.3% in 2010.

Manufacturing accounts for 11.0% of GDP, down from 14.5% in 2005. Output rose modestly in the first half of

2010 but the recovery gained momentum in the second half of the year. Food manufacturers and motor

vehicle producers are leading the turnaround. Manufacturers are adding to their workforces at a steady pace.

In the mineral sector, Canada is the world's largest producer of zinc and uranium and has substantial reserves

of nickel, potash, cobalt, silver and gold. British Colombia's coal industry has made a dramatic comeback since

China began to import coal in 2004. Altogether, the province has 25 billion tonnes of proven coal reserves.

Flush with cash, Asian companies are investing heavily in Canada's mineral and energy resources. Chinese and

South Korean companies are among the leaders.

Overview of the Economy

The Canadian economy performed well for more than a decade. Cautious financial policies combined with a

commodity boom enabled Canada to realise one of the strongest budget positions among industrialised

countries.

The pace of growth slowed in 2008 and the economy began to contract in the fourth quarter. Real GDP fell by

2.5% in 2009 but growth returned in 2010. Canada's recession was perhaps the worst since the 1930s but

both demand for exports and domestic investment had begun to recover before the end of the year. In

general, Canada weathered the recession better than most large economies.

For several years, the federal government managed to reduce its debt while still allowing sizeable tax

reductions. That strategy had to be abandoned in 2009 in order to help the struggling economy. In the future,

Canadian enterprises will face stronger competition from rivals in emerging economies and higher security

costs at the US border.

Foreign Trade

Canada has signed a number of Free Trade Agreements (FTAs) with countries in Europe, Latin America and the

Middle East and several others in negotiation. In spite of Canada's efforts to diversify its export markets since

the mid 1990s, its international trade is still strongly intertwined with that of the USA. In 2009, 75.1% of its

exports were shipped across the southern border.

Oil has gained predominance in Canada's exports, following the exploitation of the oil sands reserves in the

Western provinces. Petroleum and petroleum products accounted for 23.1% of the country's total exports in

2009.

Exports are of considerable importance to the Canadian economy despite the fact that their share in GDP has

been falling for several years. In 2010, exports represented 24.4% of GDP, up from 23.6% in 2009.

Export growth has slowed (mainly due to the weakening US economy) and the current account surplus has

disappeared. The deficit was 3.0% of GDP in 2010 but will narrow over the medium term.
 Economic Prospects

Real GDP grew by 2.9% in 2010 and gains of 2.3% are forecast for 2011. Domestic demand will slow owing to

household debt and a cooling housing market. A strong Canadian dollar is likely to restrain exports.

Real growth of private final consumption was 3.4% in 2010 while growth of 2.8% is predicted for 2011.

Business investment is also expected to rise by more than 7% during the year. Elevated household debt

continues to be burden on consumer spending.

To help the economy, new spending and tax breaks were introduced in 2009 and 2010 valued at US$43 billion.

Most of the money is being spent to improve railways, roads and ports. Even more money will be allocated to

buy mortgage-backed securities from banks, in hopes that they will boost lending. Finally, more than US$2

billion is going to improve existing housing and build new units. Altogether, these spending plans will represent

an injection equivalent to 1.9% of GDP in 2009 and 3.2% through 2010.

Unlike in the experience of the USA, Canada's labour market is performing well. Employment has returned to

pre-crisis levels. Unemployment was 8.0% in 2010 and will dip to 7.5% in 2011.
Evaluation of Market Potential

The government's main priorities are to return Canada's debt to a downward trajectory, ensure the economy's

financial stability and boost labour productivity.

Population ageing could tarnish economic prospects in the medium term. As Canada's baby-boomers enter

retirement, the dependency ratio will rise and the working-age population will shrink without a net inflow of

migrants. New retirees expect steady improvements in living standards, despite increases in the old-age

dependency ratio. This will require even stronger rates of productivity growth than at present.

Once the recovery is complete, real rates of growth are expected to slow. The country's potential rate of

growth is also likely to fall as the work force ages. The government needs to quickly return to its practice of

balancing the budget in order to cope with the fiscal pressures of an ageing population.
BUSINESS ENVIRONMENT

Canada has a relatively liberal business environment though there are restrictions on foreign ownership in

selected industries. Nonetheless, the country has some of the most stringent restrictions on foreign ownership

among all industrialised countries, mainly in telecommunications, broadcasting and domestic airlines. These

laws limit competition and the pace of innovation.

Productivity growth is high in relation to European standards but lower than in the USA. The productivity gap

reflects lower rates of investment, especially in high-tech equipment and R&D, as well as the weaker

performance of Canadian firms that are less exposed to foreign competition. A planned reduction in the tax

rate on capital formation should help to encourage private investment. All remaining tariffs on inputs for

manufactures will be eliminated.

Tax rates on income are moderate. The top federal income tax rate is 29% while provincial rates range from

10% to 24%. Tariffs on various types of machinery and equipment have been eliminated. The move is

expected to provide US$440 million in savings for Canadian industries.

Table 1 Indicators of Business Environment: 2010

Indicator 2010
Table 1 Indicators of Business Environment: 2010

Indicator 2010
Ease of doing business rank (out of 183)  7
   
Starting a Business   
Cost (% of GNI per capita)  0.4
Time (days)  5
   
Dealing with construction permits   
Time (days)  75
Cost (% of GNI per capita)  101
   
Employing workers   
Minimum wage for a 19-year old worker or an apprentice (US$/month)  1,703.70
Ratio of minimum wage to average value added per worker   0.34
   
Tax rate    
Total tax rate (% profit)  29.2
Labour tax and contributions (% of commercial profits)  12.6
Time (hours per year)  131
   
Exporting   
Documents for export (no.)  3
Time to export (days)  7
Cost to export (US$ per container)  1,610
   
Importing   
Documents for import (no.)  4
Time for import (days)  11
Cost to import (US$ per container)  1,660
   
Protecting investors   
Strength of investor protection index (0-10)  8.3
   
Closing a Business    
Time (years)  0.8
Cost (% of estate)  4
Source: Euromonitor International based on the World Bank

Note: The cost for starting a business is recorded as a percentage of the economy's income per capita. It

includes all official fees and fees for legal or professional services if such services are required by law. In the

absence of fee schedules, a government officer's estimate is taken as an official source. In the absence of a

government officer's estimate, estimates of incorporation lawyers are used. Figures for dealing with

construction permits records all procedures required for a business in the construction industry to build a

standardised warehouse. Cost is recorded as a percentage of the economy's income per capita. Only official
costs are recorded. All the fees associated with completing the procedures to legally build a warehouse are

recorded, including those associated with obtaining land use approvals and preconstruction design clearances;

receiving inspections before, during and after construction; getting utility connections; and registering the

warehouse property. The total tax rate measures the amount of taxes and mandatory contributions borne by

the business in the second year of operation, expressed as a share of commercial profit. Doing Business 2011

reports the total tax rate for calendar year 2009. The total amount of taxes borne is the sum of all the different

taxes and contributions payable after accounting for allowable deductions and exemptions. Time is recorded in

hours per year. The indicator measures the time taken to prepare, file and pay 3 major types of taxes and

contributions: the corporate income tax, value added or sales tax and labor taxes, including payroll taxes and

social contributions. Doing Business compiles procedural requirements for exporting and importing a

standardized cargo of goods by ocean transport. Cost measures the fees levied on a 20- foot container in U.S.

dollars. All the fees associated with completing the procedures to export or import the goods are included. The

cost does not include customs tariffs and duties or costs related to ocean transport. Only official costs are

recorded. The strength of investor protection index is the average of the extent of disclosure index, extent of

director liability index and the ease of shareholder suits index. The index ranges from 0 to 10 with higher

values indicating greater investor protection. The cost of the proceedings for closing a business is recorded as

a percentage of the value of the debtor's estate. The cost is calculated on the basis of survey responses and

includes court fees and government levies; fees of insolvency administrators, auctioneers, assessors and

lawyers; and all other fees and costs.

ENERGY

Canada's conventional crude oil reserves amount to 28.6 billion barrels. However, if Alberta's oil sands are

included, crude oil reserves total 178.6 billion barrels. Based on the latter estimates, the country is second only

to Saudi Arabia. The inclusion of oil sands in official reserves is controversial because these resources are much

more difficult to extract and process than conventional crude oil. Nearly three-quarters of all planned

investments in development of oil sands were deferred as a result of the recession but much of that has now

restarted.

Although conventional oil production is falling, Canada's total oil production is increasing and the upward trend

should continue through 2015. The oil sector has recently seen significant mergers and acquisitions, with US

firms purchasing over US$35 billion in Canadian oil and gas assets.

Canada also has 1.6 trillion cubic metres of natural gas. Most of this is exported to the USA through pipelines

in Idaho, Montana, North Dakota and Minnesota.

SOCIETY
Population

Canada's population is growing at a decelerating pace. It rose by 2 million in 2004-2010, reaching 34 million

by the end of that period. The country's median age is also rising and was 39.7 years in 2010.

Immigration already accounts for more than 50% of Canada's population gains and will be responsible for

virtually all growth in the labour force in the future. Approximately 20% of Canada's population is foreign-born
 and roughly two-thirds of the foreign-born (regardless of when they entered the country) live in Canada's three

largest metropolitan areas – Toronto, Montreal and Vancouver.

As birth rates decline, Canada is also experiencing a moderate-to-rapid ageing process. As the ageing process

proceeds, the ratio of workers to total population will decline and consumption taxes may be hiked in order to

maintain government revenues.

Income and Expenditure

Canada's savings ratio has been relatively stable in recent years. In 2010, it amounted to 4.4% of disposable

income.

Consumer expenditure per capita has been slowly rising since 2005 and amounted to C$27,331 (US$26,532) in

2010. Annual disposable income per capita amounted to C$28,640 (US$27,802) in 2010.
Statistical Summary

  2005 2006 2007 2008 2009 2010

Inflation (% change) 2.2 2.0 2.1 2.4 0.3 1.8
Exchange rate (per US$) 1.21 1.13 1.07 1.07 1.14 1.03
Lending rate 4.4 5.8 6.1 4.7 2.4 2.7
GDP (% real growth) 3.0 2.8 2.2 0.5 -2.5 3.1
GDP (national currency millions) 1,368,730.0 1,439,290.0 1,531,430.0 1,602,470.0 1,527,670.0 1,623,780.9
GDP (US$ millions) 1,129,535.7 1,268,808.6 1,425,780.8 1,501,772.4 1,339,744.8 1,577,779.1
Population, mid-year ('000) 32,480.8 32,812.8 33,143.7 33,481.2 33,809.4 34,104.7
Birth rate (per '000) 10.7 10.9 11.0 11.0 10.9 10.6
Death rate (per '000) 6.9 7.1 7.2 7.2 7.2 7.4
No. of households ('000) 12,277.6 12,437.5 12,598.3 12,755.0 12,910.9 13,067.2
Total exports (US$ millions) 360,710.9 388,233.6 420,135.3 456,443.8 316,568.6 378,322.0
Total imports (US$ millions) 314,608.6 350,148.4 380,379.6 408,816.3 321,203.0 389,441.5
Tourism receipts (US$ millions) 13,768.0 14,689.0 15,459.0 15,267.0 15,516.8 15,654.8
Tourism spending (US$ millions) 18,017.0 20,620.0 24,716.0 27,306.0 28,854.2 30,226.5
Urban population ('000) 25,889.1 26,184.9 26,474.8 26,774.7 27,081.0 27,372.0
Urban population (%) 80.1 80.2 80.3 80.4 80.5 80.6
Population aged 0-14 (%) 17.6 17.3 17.0 16.8 16.6 16.4
Population aged 15-64 (%) 69.3 69.5 69.6 69.6 69.6 69.6
Population aged 65+ (%) 13.1 13.2 13.4 13.6 13.8 14.0
Male population (%) 49.5 49.5 49.5 49.5 49.5 49.5
Female population (%) 50.5 50.5 50.5 50.5 50.5 50.5
Life expectancy male (years) 78.0 78.4 78.6 78.8 78.9 79.1
Life expectancy female (years) 82.7 83.0 83.1 83.3 83.4 83.5
Infant mortality (deaths per '000 live births) 4.9 4.8 4.8 4.7 4.7 4.6
Adult literacy (%) 99.4 99.5 99.5 99.6 99.7 99.7

Imports and Exports

Major export destinations 2009 Share (%) Major import sources 2009 Share (%)
North America 75.1 North America 51.1
Europe 9.7 Asia Pacific 18.5
Asia-Pacific 8.1 Europe 15.0
Latin America 3.1 Latin America 8.1
Africa and the Middle East 2.2 Other countries 3.5
Other countries 1.3 Africa and the Middle East 3.2