Global price pressures beset Canada’s economy just as unemployment was nearing record lows amid a strong recovery from the pandemic. Policymakers face the challenge of reining in inflation without causing a recession. Strong revenues have reduced fiscal deficits even as the federal government has extended living-cost relief and announced measures to make housing and childcare more affordable. But multi-year spending commitments will make it hard to sustain budget improvements without improved tax and spending efficiency. Moreover, for Canada to escape years of weak investment and tepid productivity growth, reforms to improve the business climate are overdue. The challenge is to lift living standards with minimal environmental impact. Canada aims to eliminate its net greenhouse gas emissions by 2050. Achieving this in a resource-intensive economy requires strong incentives to phase out fossil-fuel use and encourage energy saving. To spur decarbonisation, the federal climate strategy deploys a mix of emissions pricing, green technology support and regulations. The focus should turn now to improving mitigation tools so that they work better together while addressing remaining barriers to low-cost abatement. Canada’s federal and sub-national governments must align efforts on delivering efficient and fair measures to reduce emissions and prepare communities for climate change.

OECD’s periodic surveys of the Canadian economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

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