ATB ECONOMICS | April 29, 2025

The road forward: Tackling Canada’s biggest economic challenges

“It’s the economy, stupid” was coined by James Carville in 1992 to help keep Bill Clinton’s presidential campaign focused on three key messages (the other two were “change vs. more of the same” and "don't forget health care”).

When it comes to what’s next for Canada’s new Liberal minority government under Mark Carney,* it’s about more than the economy.

With that said, there is no shortage of thorny economic challenges facing Canada. Today’s Twenty-Four highlights five big items on our list the federal government will need to tackle in collaboration with provinces, municipalities, Indigenous peoples, and industry.

*At the time of writing, the Liberals were leading in 168 ridings, shy of the 172 needed for a majority.

Tackling tariffs and trade - It’s not just the elephant in the room, it’s the elephant in a tiny elevator. U.S. tariffs, Canadian counter-tariffs, and the uncertainty surrounding them are why we recently downgraded our growth outlook for both Canada and Alberta. With U.S. trade policy under Trump shifting hard toward protectionism, successfully adapting to a more challenging trade environment (you can add China’s trade disputes with Canada to this) is the most immediate job to tackle. This includes negotiating a renewed Canada-United States-Mexico Agreement (CUSMA) and expanding into new markets (see below).

Boosting productivity and investment - Canada’s flagging productivity has been an issue for many years. It may sound like an esoteric concern, but generating more output with the same or less effort (higher productivity) opens the door to improved living standards, wage growth, and increased competitiveness. The productivity problem is closely linked to low levels of business investment, as we highlighted last week. The gap versus the U.S. and OECD countries has been widening, especially when it comes to investment in productivity-enhancing machinery and intellectual property. Creating an environment that fosters more investment in Canada will be critical.

Getting stuff built - Modern liberal democracies are, by design, a complicated form of government that tries to take multiple interests and rights into account. This is a good thing, but if not managed carefully, it can make it very difficult to get major projects built. As the C.D. Howe Institute has pointed out, “Canada struggles to complete large infrastructure projects, let alone cheaply and quickly.”

Building more homes also falls under this banner. More housing is needed to accommodate the recent spike in population and to improve affordability, especially for low-income Canadians and young people trying to get a foothold in the market.

Accessing  markets - Tariffs have shone a light on our outsized dependency on a single market and are making it more critical than ever to expand our customer base. There are signs of progress, for example in the energy sector, but more work needs to be done.

It’s not just international markets that need our attention; we also need to get better at trading with ourselves. Internal trade barriers continue to create economic friction within Canada. Unlike U.S. and Chinese tariffs, however, removing internal barriers to trade is entirely within our control. According to the International Monetary Fund, removing Canada’s internal trade barriers would boost GDP per capita by about 4%. As former Bank of Canada Governor Stephen Poloz has said, “That’s free money, lying there on the sidewalk and everybody is refusing to pick it up.”

Developing talent - The need for more skilled labour is a longstanding issue in Canada. According to a recent Canadian Survey on Business Conditions, nearly two-fifths of businesses were expecting to face at least one labour shortage-related obstacle over the next three months. We need to get better at training, retraining, credential recognition, and smart immigration policy that is responsive to labour market needs.

Answer to the previous trivia question: Harper Lee is the author of the Pulitzer Prize-winning novel To Kill a Mockingbird.

Today’s trivia question: How many minority governments have there been at the federal level in Canada since 2004?