Canada's economic recovery has slowed dramatically but the economy is still expected to continue on a slight upward trend through next year and 2012, according to a new report.
The Organisation for Economic Co-operation and Development's annual economic outlook for 88 countries was released Thursday.
It said reduced demand for Canada's exports and crimped household spending have slowed, but not stalled, the nation's recovery.
"Activity is nevertheless projected to progress at a moderate pace through 2011-12 as employment prospects and external demand gradually pick up again," the report said.
The OECD said Canada is expected to remain attractive as a business investment and said most domestic firms are showing "healthy profitability and financial positions and low funding costs."
"Substantial economic slack should gradually diminish but keep inflation pressures subdued," according to the report.
In order to maintain investor confidence, Canada should continue to phase out stimulus spending brought in during the recession, and focus on reducing structural deficits, the OECD said.
Canada should also keep a close eye on interest rates, the OECD said.
"While monetary policy currently remains accommodative, the Bank of Canada should delay further rate hikes until early 2011 when a recovery in private demand is expected to gain firmer traction, after which a gradual pace of tightening would be appropriate."
The report says Canada's GDP increased by 3% in 2010, over the previous year. In 2011, the OECD predicted, that rate will fall to 2.3%, but will be back up to 3% by 2012.
Unemployment, sitting at 8.1% in 2010, will fall to 7.8% next year, then to 7.4% in 2012.
Inflation is predicted to remain relatively stable at 1.6% in 2010, 1.7% in 2011, and 1.5% in 2012.
Worldwide, governments will have to be vigilant to protect their economies if they hope to make a smooth exit from the aftermath of the recession, the report said.
The main challenge will be to move from a policy-driven recovery toward self-sustained growth, the OECD said.
Following are some key findings from the report:
Across all OECD countries, GDP is predicted to rise by 2.3% next year, and 2.8% in 2012.
In the U.S., GDP is predicted to rise by 2.2% next year, then by 3.1% in 2012.
In Europe, GDP is expected to rise by 1.7% next year, then 2% in 2012.
Japan's GDP is expected to rise by 1.7% in 2011, then 1.3% in 2012.
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