Canadian economists, Cassandras no longer, see steady growth
For years Canadians have heard a lot of moaning and groaning about their country's economy. But now the voices of economists sound more like cheery whistling. ``The pluses outweigh the minuses,'' says Dr. Peter M. Cornell, a director of the Economic Council of Canada. ``There have been a lot of favorable signs accumulating. We see a far better picture over the next five to 10 years.''
Gerald Bouey, governor of the Bank of Canada, notes: ``The economy is performing pretty well.'' Nor does he see any reason why the current ``more-balanced growth'' should not continue.
The Royal Bank of Canada talks of ``clear sailing ahead.''
One of the less chipper observers, James G. Frank, chief economist of the Conference Board of Canada, still figures national output will grow 2.6 percent in 1986, compared with some 4.1 percent this year. ``If I could see an investment boom, then I would forecast faster growth,'' he says.
During the 1950s, '60s, and the first part of the '70s, the output of goods and services in Canada grew relatively rapidly for an industrial country. Then a slowdown in investment in resources (including oil and gas), weak commodity prices, steep inflation, a decline in productivity, and the deep recession at the start of this decade hit Canada hard.
Only now does it appear that Canada may be returning to the fast track. Canadian morale got something of a boost in September from the report of the Royal Commission on the Economic Union and Development Prospects for Canada, chaired by Donald S. Macdonald.
That commission predicted that in the absence of major policy changes, Canada can expect to experience ``steady but unspectacular growth.'' It talked of annual real growth averaging about 3 percent during the late 1980s and declining to about 2.5 percent during the 1990s, when the work force is expected to grow more slowly.
Even those growth rates will be better than in the last decade. The Macdonald commission, however, recommends a number of policy changes to speed up growth and productivity. These call for ``some disentanglement and simplification of the role of government in society and the economy.'' They urge a ``highly supportive framework for private sector enterprise and astute management of overall economic growth.''
More specifically, the commission suggested that the government do less to shore up declining industries or companies; seek freer trade with the world in general and the United States in particular to induce Canadian business to become more productive; encourage more research and development; reduce or eliminate regulatory and other barriers to competition; privatize some crown corporations; relax restrictions on foreign investment; and adopt a ``sunset clause'' on major regulatory activities, requiring
their review at the end of perhaps 10 years.
Without such reforms, the commission contends, reduction of unemployment from the current 10 percent rate to a level of 6.5 to 8 percent ``may be a lengthy and difficult process.''
Noting the problems governments have in making such reforms, the commission concludes: ``This basic challenge of political will is the central determinant of improved economic performance.''
Last month in its annual report, the Economic Council sounded even more cheery, talking of 3.5 percent annual average growth for the next 10 years, inflation below 4 percent a year, unemployment falling to 7.5 percent between 1991 and 1995, and the federal budget deficit declining as a percentage of gross national product from around 7 percent now to 2 percent in the same period.
To the pleasure of the Progressive Conservative government of Prime Minister Brian Mulroney, most of these recommendations square with its economic policy. In its inaugural ``Speech From the Throne'' a year ago, the government spoke of simplifying the operations of government, of reducing the budget deficit, of various supply-side measures to remove obstacles to growth and encourage entrepreneurial activities, and of tax reform.
An adviser to Mr. Mulroney notes that the government has reached an agreement with the western provinces on energy policies, prompting renewed drilling activities and other investments in that region. It has greatly simplified procedures for foreign investors. And it has started the process of privatizing some crown corporations.
As a result of these actions, he maintains, investors have more confidence in Canadian prospects. Some Canadian capital that had fled to the United States for better investment opportunities has ``started to return.''
The Bank of Canada's Mr. Bouey says Canada's recovery has been moving from a stage of considerable dependence on the revival of growth in the US economy to developing some steam of its own. He regards consumer spending as not bad, sees a pickup in housing, and finds some signs of stronger business spending on plant and equipment.
Also encouraging, he notes, is the decline in the value of the US dollar orchestrated by the major industrial nations. Since Canada's dollar tends to track the US dollar, this means Canadian exports should also be better able to compete in Western Europe or Japan.
``The Canadian dollar has been seriously overvalued against every other currency other than the US dollar,'' he says.
Bouey was also pleased that Canada's interest rates have been able to come down somewhat faster than those in the US.
He concluded: ``If the rest of the world will perform well, I see no reason why we should not have a reasonable rate of growth in Canada.''