Canadian Bank Anticipates Long, Tough Recession
UNEMPLOYMENT is up and so is inflation. Manufacturing jobs are disappearing by the tens of thousands, housing sales are at an eight-year low, and property values are in a nosedive. Retail sales fell 4.2 percent in November, the largest drop since 1971. Interest rates are 5 percentage points above those in the United States. The result in Canada is a deep recession. Some areas of the country are being hit harder than others. In the last recession in 1982, it was the resource-based provinces of western Canada. This time the manufacturing provinces of Ontario and Quebec are being hurt most.
``We have had eight good years, particularly in Ontario. The party's over,'' says John Clinkard, senior economist with Canadian Imperial Bank of Commerce.
The bank predicts a long recession with unemployment peaking at 10 percent - from its present 9.1 percent - before the economy starts a recovery, probably in the third quarter of 1991.
Quebec, relying on such industries as textiles and shoes, is affected more than Ontario, with its broader manufacturing base.
The unemployment rate in the Montreal area, which has some 2.9 million of Quebec's 6.5 million people, was 11.7 percent in November.
The unemployment rate in Toronto, a city of 3.4 million in neighboring Ontario, is just 6.7 percent.
``I find these statistics [on Montreal's unemployment rate] absolutely catastrophic,'' says Nycol Pageau-Goyette, president of the Chamber of Commerce of Metropolitan Montreal. She calls for federal government assistance.
``It is time the Canadian government changed its monetary policy,'' says John Gardiner, a senior politician in Montreal's City Hall.
There seems little chance that the federal government will provide aid to hard-hit regions.
But the Bank of Canada has eased somewhat its anti-inflation, tight-money policy. This prompted major commercial banks last week to cut their prime lending rates for their better customers by one-half of a percentage point to 12.75 percent, the lowest level since February 1989.
Trade unions are blaming the slump on the Canada-US free trade agreement, which they didn't like to start with. The Canadian Labour Congress said in a recent report that 226,000 jobs have been lost in Canada in the first two years of the agreement.
Some economists dispute this job-loss figure, saying not all of the workers remain unemployed. Further, one reason for the loss of manufacturing jobs has been the high value of the Canadian dollar, now worth about US$.86. The Bank of Commerce predicts it will be around 82 cents a year from now.
Housing prices, the measure of middle-class wealth, have taken a steep fall, especially in Toronto. Across the country, the value of resale houses dropped by 9 percent in the last year; in Toronto, the drop was 15 percent.
There is a glut of condominiums, bought mainly by speculators who now have to move in or rent. That has driven rents down and vacancy rates up.
Canada Mortgage and Housing Corporation, a federal agency, reports that apartments on average now stay vacant for seven months before being rented.
The glut of supply means there is little construction.
There has been some good news. The number of millionaires in Canada has been rising. According to a study done by accounting firm Ernst and Young, 425,000 households are in the million-dollar category, 4.5 percent of the total. Most of that wealth is in real estate and pension plans.
``We're a lot better off than we were in the last recession,'' says Colin Deane of Ernst and Young. Once this recession is over, ``we anticipate much of the coming decade will be a period of steady economic growth.''