Canada's economic growth outpaces the US

Leader of the pack: That's the role analysts here are projecting for Canada among the Group of Seven major developed economies for 2001.

Already Canada has shown it can move ahead at twice the pace of the United States: 4.8 percent vs. 2.4 percent for the third quarter.

Have two of the most closely linked economies on the planet come unhooked? Not quite. Canada is expected to slow down somewhat with the US. "There's never been a single episode where a slowdown in the US hasn't sideswiped Canada," says economist Marc Levesque.

But Canada's current growth is being driven largely by forces within Canada, by strong domestic demand, notably for consumer goods, housing, and high-technology capital equipment. Although the two countries "will always work together," says Deutsche Bank economist Andrew Spence, "we're no longer so reliant on exports to the US" as an engine of growth.

Canada went through some wrenching structural adjustments during the 1990s: adjustment to the bilateral free-trade agreement from 1989 on, and then from 1995, several years of austerity budgets as Finance Minister Paul Martin conquered the country's budget deficits."

These events represented "major headwinds" that Canada no longer has to face, says Mr. Spence.

Today, economists are seeing the tough market discipline of those years paying off, in higher productivity and rising personal disposable incomes.

"Our standards of living are rising again, and fairly quickly," says Mr. Levesque, after decline in the early 90s and stagnation for a period after that.

Levesque is currently preparing a forecast for next year in which "we've got Canada leading the G-7," with real growth of 3.4 percent. At this rate, he expects, Canada will outpace the rest of the G-7, albeit "not by a huge margin."

Similarly, Spence sees Canada "leading the G-7" next year "in terms of economic momentum." One specific reason to be upbeat: Federal tax cuts are expected shortly.

Ironically, the news of Canada's strong third-quarter performance came out last week about the same time as a jeremiad from newspaper baron Conrad Black, lamenting the country's relative decline in affluence as well as the drop in value of its dollar, nicknamed the "loonie," from parity with the US dollar 40 years ago to 64 cents to the greenback today.

But Levesque takes issue with Mr. Black's pessimism: "That would have been warranted five or six years ago," he says. "But in the last few years, we've really cleaned up public finances and are getting budget surpluses."

Black's comment on the loonie has struck a nerve here. But the US-Canadian exchange rate "is an echo of an intense period of structural change," says Spence. "At some point that echo is going to fade."

(c) Copyright 2000. The Christian Science Publishing Society

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