Bank of Canada Blamed for Recession
THE Conference Board has called it a ``made in Canada'' recession, brought on by interest rates 5 percentage points higher than they are in the United States. ``This will be the first made in Canada recession, while the United States may avoid one altogether,'' said the Conference Board of Canada in a report released in Ottawa late last week. The business group said the government will extend the recession when it introduces a 7 percent national sales tax in January.
Unemployment, now at 7.9 per cent, is expected to climb to 9 percent by the spring and inflation will move from 4.1 per cent to 6.1 percent, according to the Board.
The object of the Bank of Canada's high interest-rate policy was to keep down inflation. But the central bank ``overshot'' the target, said Jim Frank, the board's chief economist.
Layoff announcements at big Canadian firms added more bad economic news last week. Air Canada, the biggest airline, said it will sack 2,900 employees; Imperial Oil, the country's largest oil company, will lay off as many as 2,400; and Canadian National, the biggest railway, wants 1,500 head office staff to take early retirement.
One charter airline, Worldways, is closing because of rising fuel costs; 1,100 jobs will be lost. Canadian Airlines International says it will cut several hundred staff.
The Finance Minister, Michael Wilson, admitted the economy was slowing, but would not actually use the word recession. ``It's part of a natural development in an economy that has been growing as quickly as we have,'' Mr. Wilson said.
But economists have criticized the high interest-rate policy to fight inflation. ``The message that is not getting through is this is not a minor incident. This is going to be a long, serious recession and the longer interest rates stay up, the longer the recession is going to be,'' says Douglas Peters, chief economist of Toronto Dominion Bank.
Mr. Peters says that, when all the numbers are in, the recession will be seen to have started in January of this year, and won't be over until of the middle of 1991. ``High oil prices and the GST [the new sales tax on goods and services] are only making it worse.'' So far the government has not reported two consecutive quarters of negative growth - a common definition of recession. But Peters expects that when the statistics are revised, they will show a recession. Business groups, usually strong supporters of the Conservative Party, have been calling for cuts in federal spending and lower interest rates.