Help the Government of Canada organize its website Canada.ca!
Complete an anonymous 5-minute questionnaire. Start now.

Budget 2001 - Budget Plan
- Table of Contents - Previous - Next -

Archived – Chapter 2
Global Economic Slowdown and Implications for Canada

Archived information

Archived information is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

Highlights

  • healthier finances through balanced budgets and debt repayment;
  • the $100-billion tax cut, proportionately larger than in the U.S.;
  • low and stable inflation;
  • declining foreign debt; and
  • historically low interest rates.

Note: This chapter incorporates data available up to December 3, 2001.

The world economic outlook has weakened significantly

World Real Gross Domestic Product (GDP) Growth - bpc2-1e.gif (9,750 bytes)

Growth was already slowing in all major economies prior to September 11, particularly in the U.S.

Real GDP Growth for the U.S., Euro Area and Japan - bpc2-2e.gif (6,602 bytes)

  • monetary tightening during 1999 and 2000;
  • high energy prices in 2000; and
  • a sharp downturn in business investment in information and communications technology (ICT) goods accompanied by a steep decline in technology-sector equity prices.

The terrorist attacks disrupted an already weakening U.S. economy...

Monthly Change in U.S. Employment - Selected Industries - bpc2-3e.gif (8,206 bytes)

...and further weakened U.S. consumer and business confidence

U.S. Consumer Confidence and Business Conditions Indices - bpc2-4e.gif (14,996 bytes)

U.S. private sector forecasters expect a recovery beginning by mid-2002

U.S. Real GDP Growth - bpc2-5e.gif (8,365 bytes)

  • the lagged effects of this year’s interest rate cuts;
  • U.S. fiscal stimulus enacted both before and after September 11; and
  • the benefits to consumers and businesses of the recent sharp decline in energy prices.

The weak first half of 2002 is expected to constrain U.S. growth to 1.1 per cent next year

Table 2.1
U.S. Forecast Summary


2001

2002


(per cent)

Real GDP growth

October 2000 Economic Statement and Budget Update

3.5

n/a

May 2001 Economic Update

1.8

3.2

December 2001 budget

1.1

1.1

CPI inflation

October 2000 Economic Statement and Budget Update

2.7

n/a

May 2001 Economic Update

2.9

2.4

December 2001 budget

2.9

2.0

3-month Treasury bill rate

October 2000 Economic Statement and Budget Update

6.2

n/a

May 2001 Economic Update

4.3

4.5

December 2001 budget

3.4

2.3

10-year government bond yield

October 2000 Economic Statement and Budget Update

6.1

n/a

May 2001 Economic Update

5.0

5.3

December 2001 budget

4.9

4.6


Sources: September 2000, April 2001 and November 2001 Blue Chip Economic Indicators.

Weakness in the U.S. economy has significantly affected Canadian export

Canadian Real Export Growth and Real Final Domestic Demand Growth - bpc2-6e.gif (9,338 bytes)

Labour market conditions have weakened in Canada, particularly in export-oriented manufacturing industries

Manufacturing Sector Employment and Employment and Unemployment Rate - bpc2-7e.gif (18,956 bytes)

September 11 disruptions impacted on Canadian output

Real Output by Industry - bpc2-8e.gif (9,761 bytes)

A smoothly functioning Canada-U.S. border has become increasingly important to the Canadian economy

Two-Way Merchandise Trade Between Canada and the U.S. - bpc2-9e.gif (12,375 bytes)

Business and consumer confidence have declined

Canadian Consumer and Business Confidence - bpc2-10e.gif (11,524 bytes)

The private sector outlook for 2001 and 2002 has been revised down sharply

Real GDP Growth - bpc2-11e.gif (10,223 bytes)

Table 2.2
Evolution of the Average Private Sector Forecasts for Canada


2001

2002

2003


(per cent)

Real GDP growth

October 2000 Economic Statement and Budget Update

3.5

3.0

3.0

May 2001 Economic Update

2.4

3.4

3.4

October 2001 private sector survey

1.5

1.5

3.9

December 2001 budget

1.3

1.1

3.9

GDP inflation

October 2000 Economic Statement and Budget Update

2.0

1.5

1.9

May 2001 Economic Update

1.8

1.7

2.0

October 2001 private sector survey

2.6

1.6

1.9

December 2001 budget

1.3

0.2

1.9

Nominal GDP growth

October 2000 Economic Statement and Budget Update

5.5

4.6

5.0

May 2001 Economic Update

4.2

5.1

5.4

October 2001 private sector survey

4.1

3.1

5.9

December 2001 budget

2.6

1.3

5.9

3-month Treasury bill rate

October 2000 Economic Statement and Budget Update

5.8

5.5

5.4

May 2001 Economic Update

4.6

4.7

5.4

October 2001 private sector survey

4.0

3.2

4.7

December 2001 budget

3.8

2.4

4.0

10-year government bond yield

October 2000 Economic Statement and Budget Update

5.9

5.8

5.9

May 2001 Economic Update

5.3

5.6

5.8

October 2001 private sector survey

5.5

5.5

5.9

December 2001 budget

5.5

5.5

5.9


Sources: September 2000, March 2001 and October 2001 Department of Finance surveys of private sector forecasters; December 2001 consultation with private sector forecasters.

The Canadian economy is better positioned to weather the current global slowdown than it has been in decades

Real GDP Growth - bpc2-12e.gif (6,804 bytes)

  • a return to fiscal balance has allowed the largest reduction of taxes in Canadian history;
  • a solid track record of successfully lowering inflation has eliminated the fear of a return to a high inflation environment;
  • there have been large interest rate cuts; and
  • Canada’s current account balance and net foreign debt positions have improved significantly.

The fiscal positions of the federal and provincial-territorial governments have improved significantly

Federal and Provincial-Territorial Budgetary Balances (Public Accounts Basis) - bpc2-13e.gif (9,126 bytes)

This has provided room for timely supportive fiscal measures

Federal Fiscal Measures and Provincial Tax Relief - bpc2-14e.gif (7,221 bytes)

Improved fiscal conditions and low inflation have improved monetary policy flexibility

Bank Rate, One-Year Mortgage Rate and Prime Business Rate - bpc2-15e.gif (8,533 bytes)

Lower interest rates are translating into significant reductions in debt-servicing costs for households and businesses

Table 2.3
Savings on Interest Payments Since December 2000


One-year mortgage rate

Prime business rate

Rate – December 2000

7.70

7.50

Rate – December 3, 2001

4.60

4.00

Change in rate

-3.10

-3.50

Monthly payment – December 2000

$744.16

$1,562.50

Monthly payment – December 3, 2001

$559.05

$833.33

Change in monthly payment

-$185.11

-$729.16

Change in annual payment

-$2,221.32

-$8,750.00


Canada’s current account and international investment positions are in their strongest positions in decades

Current Account Balance and Net Foreign Debt - bpc2-16e.gif (14,918 bytes)

- Table of Contents - Previous - Next -