Canada's economy

Canada's economy is a highly developed mixed system and the ninth-largest globally, with a 2024 nominal GDP of approximately $2.117 trillion. As one of the most globalized trading nations, its trade in goods and services reached $2.016 trillion in 2021, with exports exceeding $637 billion. Despite trade deficits in goods and services, Canada remains a powerhouse in various sectors, from natural resources to advanced manufacturing.

The country is recognized for its robust cooperative banking sector and strong global rankings in competitiveness, innovation, and economic freedom. It boasts high average household disposable incomes and relatively low income disparity, although housing affordability and foreign direct investment levels lag behind other developed nations. Social security expenditure is significant, comprising 23.1% of GDP.

Over the 20th century, Canada transitioned from a rural to an urbanized industrial economy. The service industry dominates, employing three-quarters of the workforce, while the forestry and petroleum sectors remain critical, particularly in resource-dependent northern towns. Canada is a major global energy player, with vast oil reserves, natural gas deposits, and substantial agricultural and mineral exports. The Prairies are pivotal for grain production, and the country leads in exporting zinc, uranium, and other essential minerals.

Canada's integration with the U.S. has deepened through agreements like the Automotive Products Trade Agreement, NAFTA, and its successor, the Canada–United States–Mexico Agreement. The nation has signed 15 free trade agreements covering 51 countries. Its manufacturing hub, concentrated in Ontario and Quebec, is driven by the automotive and aeronautics industries. Fishing also significantly contributes to the economy, underscoring Canada’s diverse and resource-rich economic landscape.

Inflation

During John Crow's tenure as Governor of the Bank of Canada (1987–1994), Canada faced a global recession, with the bank rate reaching 14% and unemployment exceeding 11%. In 1991, the country became an early adopter of inflation-targeting, setting a 2% target approved by Finance Minister Michael Wilson. This innovative policy aimed to stabilize inflation measured by the Consumer Price Index (CPI). Over time, inflation-targeting helped maintain stable price growth and brought down interest rates, inflation, and the Canadian dollar's value.

The 2008 Great Recession sparked debates about the narrow focus of inflation-targeting, leading to a more flexible approach under Governor Mark Carney by 2011. The Bank employed tools like conditional policy rate statements, quantitative easing, and credit easing to achieve its targets. By 2015, in response to global economic pressures, including falling oil prices and China's slowdown, the Bank lowered its overnight rate to 0.5% to stimulate the economy. Inflation remained subdued, with CPI inflation at 1% and core inflation at 2%.

In 2017, as economic growth resumed and inflation stayed below target (1.6%), the Bank raised the overnight rate to 0.75%. However, the COVID-19 pandemic revealed unintended consequences of prolonged low rates and inflation-targeting, including rising housing prices and wealth inequality. Critics argue that these policies, while effective at stabilizing prices, have exacerbated economic disparities. The Bank continues to prioritize moderate inflation while navigating complex economic challenges.

Biggest industries

Canada's service sector dominates the national economy, employing approximately 75% of the workforce and contributing 70% to the GDP. Retail, the largest employer within this sector, accounts for about 12% of Canadian jobs. The retail landscape is heavily concentrated in chain stores, shopping malls, and increasingly, big-box stores such as Walmart, Real Canadian Superstore, and Best Buy. This shift has led to workforce reductions and the relocation of retail jobs to suburban areas.

The second-largest service sector segment is business services, encompassing financial services, real estate, and communications. These industries are concentrated in urban hubs like Toronto, Montreal, and Vancouver and have experienced rapid growth in recent years. Meanwhile, education and healthcare—two of the largest sectors—operate mainly under government oversight. The healthcare industry's rapid expansion has posed financial challenges for the government.

Canada also has a notable high-tech industry and a thriving entertainment sector producing content for domestic and international audiences. Tourism plays a growing role in the economy, particularly casino gaming, which contributes significant revenue and employment.

Historically, Canada transitioned from a resource-based to a manufacturing-based economy during World War II, with manufacturing peaking at 29% of GDP in 1944. By 2017, manufacturing accounted for only 10% of GDP, reflecting a global trend among industrialized nations. However, Canada's manufacturing volumes have generally aligned with overall economic growth, despite a notable decline during the Great Recession.

Canada's manufacturing sector remains vital in specific industries, including automotive and steel production. The country hosts plants for major American and Japanese automakers and parts manufacturers like Magna International. Steel production, led by firms like ArcelorMittal and Essar Steel Algoma, contributed 1.4% to total export value in 2018, with 83% of steel exports destined for the U.S. Despite a decline in export volume from 2018 to 2019, the sector remains an essential component of Canada's industrial economy.

Trade relations with The US

Canada and the United States maintain a deeply interconnected trading relationship, reflecting their geographical proximity and economic ties. Canada's job market has historically aligned with the U.S., achieving a 30-year low in unemployment in 2006 after 14 years of consistent employment growth.

The United States is Canada’s dominant trading partner, with daily trade exceeding CAD 1.7 billion in 2005. By 2009, 73% of Canadian exports were directed to the U.S., which also accounted for 63% of Canada’s imports. Conversely, trade with Canada represented 23% of U.S. exports and 17% of its imports—greater than U.S. trade with the entire European Union or Latin America. The Ambassador Bridge alone facilitates a trade volume between Michigan and Ontario comparable to all U.S. exports to Japan. Moreover, Canada serves as the top export market for 35 U.S. states and remains the largest foreign supplier of energy to the U.S.

Investment ties are equally significant. As of 2018, U.S. direct investment in Canada totaled $406 billion, primarily targeting mining, petroleum, and manufacturing. Conversely, Canadian investment in the U.S., valued at $595 billion, focused on real estate, finance, and manufacturing, making Canada the second-largest foreign investor in the U.S. that year. The mutual investments underscore the depth of economic interdependence between the two nations.