Extract C: The vulnerabilities of renewed expansion
While the recent acceleration in real GDP growth is a positive sign for the Canadian economy, it brings significant structural challenges. Seven years after the resource sector downturn, real output in many provinces remains just 1.5% above its previous cyclical peak. Despite a 15% depreciation of the Canadian dollar (CAD) against a basket of major currencies over the last decade, the nation's current account deficit has widened consistently, rising as a share of GDP. The federal government's policy goal of rebalancing the economy toward high-value manufacturing and green technology exports remains slow to materialise.
Furthermore, stagnant labor productivity risks turning this demand-driven expansion into a source of capacity constraints and inflationary pressure. Business surveys indicate that inflation expectations are becoming unanchored, and a tightening labor market is pushing up wage demands. This situation is very different from that of stagnant economies like Japan or southern eurozone members, where deflationary tendencies and persistent output gaps have suppressed both wage and price growth for years.
Extract C states that: 'While the recent acceleration in real GDP growth is a positive sign for the Canadian economy, it brings significant structural challenges.'
Using the data and your knowledge of economics, assess the extent to which it is likely that the Canadian economy will be able to achieve sustained economic growth without experiencing conflicts with other macroeconomic policy objectives.
