Canadian Economy Makes Positive Moves

Interest rate hits a record low and unemployment eases

PRIME Minister Kim Campbell is off to a strong economic start in her first month on the job. Very little of it is her own doing, but it certainly will not hurt in a Canadian election year.

At the Tokyo summit, Ms. Campbell and President Clinton agreed that Washington will name a special envoy to look after Canadian trade problems, such as the long-running dispute over softwood lumber. That should play well in her lumber-rich home province of British Columbia.

"We will now have someone in the White House who will be designated as someone that we can be in touch with to help manage these particular irritants," Campbell said in Tokyo.

But while the prime minister was in Tokyo there was even better news back home: Interest rates fell, as did unemployment.

Canadian interest rates are now lower than those in the United States for the first time since 1984. And there were 99,000 new jobs created in June, the largest monthly increase since 1966.

The Canadian Prime Rate is at 5.75 percent, its lowest level in 26 years. It is a quarter point below its equivalent in the US. "This is the beginning of a what will be a prolonged period of a lower prime rate in Canada," says Jeff Rubin, chief economist at Wood Gundy Inc., a Toronto-based investment dealer. "Canada is now a low-inflation country. People have more confidence in Canadian monetary policy than in US monetary policy."

He says that the Bank of Canada, the country's central bank, is out to "achieve interest rate parity" on short-term rates. "The significance is that Canada has long been hampered by the cost of capital," Mr. Rubin says. "Interest-rate parity would remove one of the major impediments to Canada's competitiveness."

Rubin and other economists say that rates could fall even farther.

"The domestic economy is still too weak for the Bank of Canada to be comfortable, so rates have to come down even further," says Lloyd Atkinson, chief economist at the Bank of Montreal.

Although Canada is out of the recession statistically, many Canadians feel the slump is still on because of high unemployment rates, which fell last month but only to 11.3 percent from 11.4 percent.

Bankers worry that people are not spending and are not borrowing. "Consumer confidence about job security is still a bigger issue than whether interest rates will go lower," says Peter Drake, a vice president at the Toronto Dominion Bank.

"People are still scared," says Marilyn Fields, a Toronto real estate broker. Mortgage rates have followed the prime downward. Yet builders are still in a slump after stagnant housing starts last month followed a 13.5 percent drop in May. Bill Strain, president of the Canadian Home Builder's Association, says that lower interest rates should do the job - but it is not likely that they will.

Canadian economic statistics are buoyed by exports, especially to the US. Although growth is expected to be almost 3.1 percent this year and 4.5 percent in 1994 - the highest in the industrialized world - activity is uneven. In the east, the province of Newfoundland is nearly shut down; its major industry, fishing, has been closed because cod and other fish have simply disappeared. Unemployment is 19.8 percent and rising. Ontario is starting to pick up - 27,000 new jobs were created last month - but it s till has not recovered the jobs lost during the recession. In Quebec, the jobless rate was up 0.3 percent to 13.4 percent. In western Canada, however, the economy is on its way up. Employment rates rose 2.1 percent in British Columbia and 0.9 percent in Alberta.

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