Following the budget announcement in early 2023, the Department of Finance had reasons to be optimistic. The Canadian economy was demonstrating strong resilience, returning closer to its potential long-term rate of economic growth.
In spite of rising borrowing costs, real GDP growth remained robust at 3.2% annually, driven by a surge in resource sectors and strong domestic demand. Consequently, the national unemployment rate fell to an historic low of 4.9%, prompting firms to expand capacity, with private business investment rising by 6% over the year.
However, persistent core inflation and a widening current account deficit, which reached 4.5% of GDP in the final quarter, sparked concerns. This deficit was fueled by a drop in commodity prices from their peak, while import volumes remained high due to strong domestic consumer spending.
In 2021, the government had set a target to double clean-tech exports by 2030, requiring a steady annual growth rate of 9%. However, actual clean-tech export growth sat at just 3.1%. The Parliamentary Budget Officer (PBO) projected that exports in this sector would fall short of the government's target by at least 25%.
With reference to Extract A, paragraph 2, explain one likely influence on Canadian business investment.
