Canada’s Economy in 1996
To investigate the state of the Canadian economy, it is very useful to
track Canada’s six major economic goals: economic growth, economic stability,
economic efficiency, economic equity, viable balance of payments, and low
unemployment. At a given time, Canada is achieving some of these goals while
falling behind on some of the others. When taken all into consideration, these
goals give an indication of how well Canada has been doing and the stage of the
business cycle the Canadian economy is in. In 1996-1997, Canada is in slight
recession and is only meeting the goals of economic stability, and viable
balance of payments.
Canada can be said to be in a period of slight recession because there is
a downswing in economic activity. To confirm a true recovery, “an economy must
show no growth for two consecutive quarters.” However, Canada is not in a true
recession because there was a 3.0% growth in the third quarter, compared to
2.2% in the second quarter. Eventhough it is not true recession, the slow
growth is a sure sign of a slight one. Low inflation is also is also prevalent
and is symptomatic of a weak economy. A low inflation rate of 1.4% in November
1996 does not provide much of an indication for economic growth and expansion.
A shrinking positive balance of payments indicates these are tough economic
times. A fourth indication of a slight recession is the high unemployment rate.
An unemployment rate of 10.0% in November 1996 is definitely not a sign of
strong economic recovery.
Canada is always trying to work towards the goal of economic growth.
Economic growth is the percentage change of GDP over a period of time and is
also known as the growth rate. In 1996, Canada’s GDP has been increasing slowly
since the first quarter. The GDP in the first quarter was 1.8%, then increased
to 2.2% in the second quarter, and in the third quarter it rose to 3.0%. In
this way, Canada has been experiencing steady growth. This goal is being met
because of the increase in consumer spending inspite of the government cutbacks.
Consumer spending levels tell producers what to produce, and how much to produce.
If consumer spending increases, it gives a signal to the producers to produce
more which causes the increasing GDP. The government cutbacks contribute does
contribute to lower consumer confidence and, thus, slows the economic growth.
Slow, growth causes few jobs to be created as it means a slower rate of
expansion of industries. When there is slow growth, few jobs are being created,
so it does not help the goal of low unemployment. Slow growth also keeps
inflation low. For example, in September 1996, the inflation rate changed from
1.3% to 1.2%. To stimulate economic growth, interest rates must be kept low.
For example, the bank rate decreased to 3.5% in November 1996. This encourages
businesses to borrow money and to expand. Increased exports also help stimulate
economic growth, because increases in foreign demand for Canadian goods and
services may stimulate the domestic markets.
The goal of economic stability has been achieved. In 1996, the inflation
rate has been relatively low. The inflation rate has been kept low as a result
of consumer confidence. Consumers were not willing to spend on expensive items
with the current job picture. This has contributed to the low inflation rate.
For 1996, the annual inflation rate has been in the 1.2% to 1.7% range. The CPI
in November 1996 was 136.8, but in November 1995, the CPI was 134.1. Over the
course of the year, the CPI has only changed 2.0%. The effects of stability is
that the purchasing power of Canadian currency remains more of less the same.
With low inflation, the value of the Canadian dollar, decreases very little.
Inflation rate can be tolerated if it provides an incentive for businesses to
expand. There, low inflation is also an incentive of economic growth. Low
inflation prompts the banks to lower interest rates which also encourages
economic growth. Since there are trade offs when deciding whether to raise or
lwer the inflation rate, governments must keep in mind that high inflation is
not healthy, but a little inflation is a prerequisite for growth.
The goal of economic efficiency has not yet been achieved, but Canada
has always been progressing towards this goal. In Canada, technology has
constantly been improving and updating. If new technology is used, the economy
can operate more efficiently, for example, the