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Economic Diplomacy

Prior to the Covid-19 emergency, Canada was experiencing a positive trend: the Gross Domestic Product had been growing for several years: +3% in 2017, +2.8% in 2018, +1, 9% in 2019.

In 2020, following the effects of the pandemic, GDP decreased by -5.2% but rebounded to +4.5% in 2021 and +3.1% in 2022.

The Canadian GDP grew more than expected in January 2023 with unemployment levels close to an all-time low through April 2023, prompting the Bank of Canada to update its 2023 GDP growth forecast to 1.4% last April (from the 1% forecast in January 2023).

In 2022, in an effort to combat high inflation, the Central Bank tightened monetary policy by raising interest rates several times, bringing it, in less than a year from 0.25% (March 2022) to 4.75% (June 2023). The goal was to slow the economy, bringing inflation to 3% by the middle of this year, to reach its target of 2% by the end of 2024. The results are significant – the annual Consumer Price Index hit a high of 8.1% in June 2022, and has been trending downward since then (4.4% in April 2023).

Employment figures have generally been on the rise since September 2022.  In May, the economy lost 17,300 jobs and the unemployment rate rose to 5.2% from 5% in the preceding months (the first increase in 9 months).  At the same time, in the first quarter of 2023 salaries rose on average by 2.3% in the manufacturing sector and by 1.6% in the service sector.

The persistent labour force shortage has given workers greater bargaining power, leading to increased salaries and inflation.

Canada’s economy is very open to international trade (about a third of GDP comes from exports). The so-called “New NAFTA”, the Canada-United States-Mexico Agreement (CUSMA), signed in November 2018, has been in effect since July 1, 2020.

Bilateral trade relations

Canada exports more than it imports:  the balance of trade for goods in 2022 was 36.5 billion CAD, a marked improvement over 3 billion CAD in 2021.

Most Canadian goods are shipped to the United States, representing a 77% share of the export value in 2022, and a trade balance of +233 billion CAD in Canada’s favour (an increase of 32% over 2021).  The trade surplus with the US goes to import goods from around the world.  There has been an increase in Canada’s imports from Asia, in particular from China, Japan, Korea, and Vietnam, which rank respectively 2nd , 5th, 6th, and 7th among main supplier countries.

Italy enjoys excellent trade relations with Canada and in 2022 was the 8th supplier country to Canada, the second European country after Germany, according to Statistics Canada.

In terms of bilateral trade, Statistics Canada figures confirm a substantial and consistent growth of Made in Italy products over the past 4 years, despite the pandemic slow-down (+27.7% in export value between 2019 and 2022).

In 2022, Italian imports to Canada amounted to 12 bln, an increase of 15.4% over 2021, while Canadian exports to Italy rose by 10.3%.  The trade balance tips in Italy’s favour, reaching 9 bln CAD, compared to 7.7 bln CAD in 2021.

Among the most significant sectors are:

  • Machinery in first place, with a 23.1% increase over 2021, with 3.38 bln CAD compared to 2.75 bln CAD in 2021;
  • Agri-food exports (including beverages) grew by 10.8% over the previous year, registering 1.8 bln CAD in 2022.
  • Fashion (fabrics, footwear, and leather goods) grew by 27.2% in a year, reaching 1.4 bln CAD compared to 1.1 bln CAD in 2021;
  • Also growing is the chemical and pharmaceutical sector, by 21.6% (1.2 bln CAD) and vehicles (and parts) close to 900 bln CAD (+14.5%) compared to 784 bln CAD in 2021.

The trade balance between Canada and Italy is in Italy’s favour.  The first quarter of 2023 showed an increase of 27.8% in Italian exports over the same period in 2022 and an increase of 3.35% in Canadian imports.