marked improvement in consumer confidence helped Canada’s economy
avoid slipping into recession in the last quarter of last year, despite
a slowdown in growth and the aftershocks of the September 11 attacks
on the country’s biggest trading partner.
The biggest single boost came from a surge in motor vehicle sales that
lifted the retail industry. A robust housing market was stimulated by
low interest rates which spurred construction and the activity of real
estate agents and brokers.
Wholesale trade and increased demand for information and communication
technology (ICT) services had a positive effect, and industries in the
travel sector continued to win back customers.
The downward slide in manufacturing and weakness in the mining and energy
sector continued to constrain expansion, however.
Figures
released by the federal agency Statistics Canada (Statscan) show that
fourth-quarter annualised gross domestic product (GDP) rose two per
cent after a drop of 0.6 per cent in the third quarter. Fourth-quarter
GDP advanced 0.5 per cent in actual inflation-adjusted terms from the
third quarter – the strongest growth in five quarters.
Weekly earnings rose less than inflation last year, but that did not
stop Canadians from spending their way clear of recession – defined
as two consecutive quarters of negative growth.
Low interest rates, due to sharp cuts by the central bank throughout
2001, and cheap loan deals encouraged the spending spree. Bank of Canada
governor David Dodge summed up: “People are more optimistic.”
According
to Statscan, the increase in net exports provided the biggest stimulus
to fourth-quarter GDP. “Imports dropped off more sharply than exports,
and businesses met the resulting shortfall of supply to domestic demand
by drawing down inventories and stepping up production,” the agency
says.
Optimism about the economy is shared by analysts looking ahead to the
rest of this year. Growth in GDP is projected at above four per cent
in the second half of 2002. “The economy should gain significant
momentum as the year progresses,” says a Bank of Canada report.
Sal Guatieri, senior economist at Bank of Montreal, says: “There
are enough positive elements to suggest recovery is on the way.”
Sherry
Cooper, chief economist at BMO Nesbitt Burns, says the economy is “in
the process of recovery”, although there are still obstacles to
be overcome before a fully-fledged return to solid growth.
Although the Canadian dollar dropped to record lows against its US counterpart
at the beginning of the year, Mr Dodge says Canada’s economic recovery
in no way hangs on a weak dollar.
The worth of the Canadian currency is a frequent topic of discussion
and analysts ponder the possibility that Canada might one day adopt
the US dollar. Both the government and the central bank stress the need
for monetary independence, but analysts say a common currency would
remove exchange risks and could boost trade between two nations that
already shift US$1 billion in goods across the border every day.
According
to a study of business costs across nine industrialised nations conducted
by financial consultants KPMG, Canada is regarded as the cheapest place
to do business, with Germany and Japan the most expensive.
The study says Canada remains the lowest-cost country in software, research
and development, corporate services and various manufacturing operations.
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