An overview of the effects of monetary policy in Canada on GDP and inflation, from 1971 to the present day.

% annual growth rate:

  M3 Nominal GDP
1971- 2022 8.98% 6.87%
1971-1980 16.79% 13.33%
1981-1990 8.18% 8.02%
1991-2000 4.98% 4.78%
2001-2010 7.52% 4.25%
2011-2020 7.68% 2.94%

Sources: M3 from OECD database and nominal GDP from IMF database, as at September 2023.

The medium-term relationship between money and nominal GDP growth in Canada, 1971-2022

Five-year moving averages of annual % changes, with 1973 being the start of the first five-year period

Comment on monetary trends in Canada

With the exception of the oil crisis of the 1970s, Canada has maintained relatively stable and moderate rates of growth of broad money compatible with low inflation and steady economic growth for several decades. In the years running up to the Global Financial Crisis, excessive broad money growth  - 10.2% annual growth in 2004, 9.86% in 2006 and 12.1% in 2007 - did result in asset price inflation, both in residential property and stock markets. However, in the aftermath of the Great Recession, Canada returned to stable rates of money and output growth far quicker than most other developed economies. The steady rate of growth of M3 at an average of 7% since 2010 has been accompanied by a sustained annual rate of growth of the economy around 4%, and quite stable inflation within the inflation target range of 1-3% (but ideally 2%) followed by the Bank of Canada.

The scale of the Canadian fiscal and monetary response to the coronavirus pandemic of 2020 was exceeded only by the USA. Annualised quarterly broad money growth rose to over 37% at one point in the spring of 2020. It also rose above 15% in the second half of 2021.

The Bank of Canada raised interest rates by 475bps between March 2022 and July 2023. In April 2022, it also started running off some of its assets purchased in 2020-21. This has cooled broad money growth down. Inflation fell back to less than 3% in mid-2023, having never reached double figures in spite of the size of the stimulus measures  of 2020.