Canadians Watch Economy Blossom
Sales and exports rise as recession fades
FOR the first time in years, the signs of spring in Canada's reviving economy include blooming ``sold'' signs on the groomed lawns of Toronto.
Those signs could not come too soon for the likes of Wally Toews and thousands of other Canadian real-estate agents who have watched home sales dry up and housing prices fall 25 to 30 percent since 1989.
``The last two or three years have been pretty tough really,'' says Mr. Toews, a Re/Max agent. ``It's going well now. There's light at the end of the tunnel now.''
Toronto home sales are up 70 percent this year over the same period last year, although 9.4 percent lower than the first three months of 1988, according to the Toronto Real Estate Board. Nationally, the Canadian Real Estate Association reports sales of existing homes up 30 percent over last year. Home building is up about 127 percent in Toronto.
There was more good news last week when the International Monetary Fund (IMF) issued a glowing report on Canada's economy, predicting 3.5 percent growth in gross domestic product (GDP) this year and 4.1 percent in 1995.
Canadian economists tend to agree with the IMF as well as Toew's seat-of-the-pants assessment.
``Canada is going to be one of the fastest growing industrialized countries this and next year,'' says Michael Gregory, an economist with Wood Gundy, a Toronto brokerage. ``The good news is that because our recession was so deep, and inflation was beaten down so far, this new growth is not going to be associated with inflationary pressures.''
Also good news were the 114,000 jobs created in February and March, three-quarters of them full-time. However, unemployment is still hovering just below 11 percent nationally. Even 4 percent growth is not enough to cut that number by much, Mr. Gregory says, it would take around 6 percent growth to do that.
Both Gregory and William Mingopoulos, an economist at DRI Canada, warn that a sharp rise in United States interest rates could be followed by hikes in Canadian rates that might stifle the economic rebound.
Political uncertainties surrounding the coming provincial elections in Quebec, where separatists are widely expected to win, may add to investors fears and help drive interest rates up and weaken the Canadian dollar.
Robust Canadian exports have for several year been the strongest beacon in an otherwise gloomy economy. But last week Statistics Canada, the federal statistical reporting agency, revealed that falling sales of automotive and forest products had caused exports to fall by $235 million (Canadian; US$171 million) in February to their lowest level since last August. However, economists now say cold weather hurt exports.
Canada has begun to shift away from being a ``resource-based'' economy, although the economy still depends on shipping huge quantities of paper, lumber, and ore to the US and on the auto-assembly plants that line both sides of the Great Lakes. Curiously, though, Canada's economic cycle, usually so closely linked to the US, has gotten out of sync of late.
``We tend to lag the US economy going in, and coming out of, recession by about six months,'' Gregory says. ``But because of the enormous industrial restructuring here and the Bank of Canada's fight against inflation, Canada is so behind the eight-ball it's taken much longer to catch up.''
As a result, the Canadian recovery is still less than what it should be, Gregory says. Mr. Mingopoulos, too, says evidence of ``slack'' in the economy is that Canadian industrial capacity utilization is still bumping along at a bit under 80 percent.