- Main Page - Interactive Budget -

Archived - Canada's Economic Situation and Prospects

The Canadian economy is in better shape now than it has been in 25 years. And the dramatic turnaround we are experiencing is especially evident in strong growth and job creation.

• The economy grew at a strong annual rate of 4.1 per cent in the third quarter of 1997 for a fifth consecutive quarter of solid growth. Final figures, to be available in early March, are expected to show that the Canadian economy grew by over 3 1/2 per cent in 1997, the strongest pace since 1994.
• Job creation has rebounded strongly. More than one million jobs have been created since the end of 1993 -- 372,000 new jobs were created in 1997 alone -- all full-time and in the private sector. Despite the temporary loss of jobs due to the ice storm in eastern Canada, overall employment was unchanged in January.
• In December, the unemployment rate fell to 8.6 per cent -- its lowest level since September 1990.
• Interest rates have decreased substantially -- due in large part to sound economic and financial management.
  • Short-term rates fell about 5 1/2 percentage points between early 1995 and mid-1997. Although short-term rates have risen since mid-1997, they are still over 3 1/2 percentage points below their early 1995 levels. Canada's short-term rates have been lower than U.S. rates for close to two years, the first such sustained period since the early 1970s.
  • Long-term rates have continued to ease, with the 10-year rate now down more than 4 percentage points since early 1995. A full percentage point of this decline has occurred since mid-1997.
• Inflation has been at its lowest sustained level in three decades. The year-over-year Consumer Price Index (CPI) inflation rate for all items in December 1997 was 0.7 per cent.
• Consumer confidence rebounded in 1997. According to the Conference Board of Canada, consumer confidence is near its highest level in the decade and above its average for the last 30 years. This has been reflected in strong growth in consumer spending on durable goods such as motor vehicles and household equipment.
• Housing starts increased to 147,000 units in 1997, a gain of over 22,000 units from 1996.
• Business confidence achieved record levels in 1997. Business investment in plant and equipment has increased strongly for five consecutive quarters, averaging 19.4 per cent at an annual rate. The rate of capacity utilization in non-farm sectors rose to 86.2 per cent in the third quarter, posting its highest rate since 1988 and more than 4 percentage points above its historical average.
• Reflecting significant growth in demand for imported goods such as machinery and equipment, import growth in 1997 outpaced export growth. Although the trade surplus has decreased and the current account has moved back into deficit, strong investment is adding to productive capacity, improving the competitiveness of the Canadian economy, and setting the stage for continued strong growth and job creation.

Canada's economic prospects remain bright as well.

• Private sector forecasters expect economic growth to remain strong this year at 3 ½ per cent. This would make 1997 and 1998 the best back-to-back economic performance in 10 years. The outlook for 1999 is similarly encouraging with growth for 1999 projected at almost 3 per cent.
• Short-term interest rates are expected to remain very low by historical standards, although private sector forecasters now expect interest rates to be somewhat higher in 1998 than forecast around the time of the October Economic and Fiscal Update.
• Long-term interest rates, on the other hand, are expected be somewhat lower than previously forecast reflecting continued fiscal progress, as well as the absence of significant inflationary pressures in the Canadian and world economies.
• Private sector forecasters also expect that strong growth and other positive economic factors will fuel continued job creation bringing the unemployment rate to an average of about 8 ½ per cent in 1998, and just over 8 per cent in 1999.
• These favourable assessments of Canada's economic prospects are shared by major international organizations. Indeed, both the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) expect that Canada will lead the Group of Seven (G-7) countries in output and job growth in 1998.
• The 1998 budget continues to base fiscal planning on more prudent projections than those provided by the private sector consensus.
  • A prudence factor of 80 basis points has been applied to short-term interest rates in 1998, along with 50 basis points for long-term rates. For 1999, both are assumed to be 100 basis points higher than the private sector forecasts.
  • Nominal GDP growth is assumed to be half a percentage point lower than the private sector forecast for 1998, and a full percentage point lower for 1999.

   

- Main Page - Interactive Budget -