Individual ResearchEssay – Canada Nicole EdwardsDecember 10, 2017BUSI 2003Macroeconomics in Global Context (17F- Section B) Professor: LeonGuendooThe Canadian economy is performing well according to the TRCEconomic Outlook (Canada, 2017). “Consumer spending, business investment andgovernment spending are all providing the momentum that should seeabove-potential growth continue through the rest of this year.
” (Canada,2017). The GDP is expected to increaseby 3.1% in 2017 and 2.2% in 2018 (Canada, 2017). The key driver of growth in 2017 is Canadianconsumer spending, though it is predicted that this will slow down in 2018(Canada, 2017). “Investment spending isexpected to add growth every in quarter this year, and will likely remain animportant driver of the economy in 2018.” (Canada, 2017).
The GDP for 2016 was 1,529.76 billion USD representing 2.47%of the world economy and the GDP per capita was 50,231.
90 USD is equivalent to398% of the world’s average (Trading Economics, 2017). The real GDP dropped to 0.4% in Q3 of 2017 with the maincontributor was an increase of household final consumption expenditure(Statistics Canada, 2017). Imports wereunchanged and exports decreased by 2.7%, of this was goods (-3.4%), motorvehicles and parts (-9.
0%), metal and non-metallic mineral products (-4.5%),consumer goods (-3.1%), and energy products (-1.9%) (Statistics Canada,2017).
However, “exports of servicesgrew 0.7% on the strength of commercial services (+2.5%).” (Statistics Canada,2017). The Growth rate for the GDP peaked at 3.6% in July 2017 anddropped to 3% in October 2017 (Trading Economics, 2017). In the past 5 years the growth rate hasfluctuated to highs and lows, but 2017 we see the growth rate at a high notseen since 2014 (Trading Economics, 2017). Per capita real GDP on Purchasing Power Parity basis was43,087.
80 USD in 2016 which is equivalent to 243% of the world’s average(Trading Economics, 2017). GDP percapita on Purchasing Power Parity is showing a steady increase since 2010 from40,699.3351 to 43,087.
80 (Trading Economics, 2017). In mid-June the Bank of Canada increased interest rates,which has not been done in over 7 years, in response to the health of theeconomy and another increase in September 2017 (Canada, 2017). “We anticipate the bank will reduce policystimulus further in the quarters ahead. The overnight rate is expected tofinish 2018 at 2.0 percent up from 1.
0 percent today.” (Canada, 2017). The Bank f Canada’s policy interest rate is1% as of December 6, 2017 (Bank of Canada, 2017).
The Canadian dollar dropped 0.57 US cents to trade at 78.19due to the Bank of Canada holding interest rates steady (Thomson Reuters,2017). “RBC now forecasts the Canadiandollar will average close to 80 U.
S. cents over the forecast horizon.” (Canada,2017).
Lower prices for oil, a majorexport for Canada, crude oil prices in the U.S. dropped 1.
48%, $56.77 USD per barrel(Thomson Reuters, 2017). In Canada theexchange rate system is flexible since the target for inflation keeps theCanadian dollar regulated there is no target for the currency exchange rate(Bank of Canada, 2012). Labour productivity decreased by 0.6% a second decline intwo quarters due to hours worked increase faster than business output (ThomsonReuters, 2017).
“Despite risingemployment and participation rates, other indicators point to ongoing – albeitdiminishing – slack in the labour market, the central bank said.” (ThomsonReuters, 2017). The unemployment rate asof November 2017 is 5.9%, which is the lowest since February 2008 withemployment up 80,000 (Statistics Canada, 2017). “In the 12 months to November, employment was up by 390,000 (+2.1%),with all the gains attributable to full-time work (+441,000 or +3.0%) aspart-time employment was down slightly. Over the same period, total hoursworked grew by 1.
0%” (Statistics Canada, 2017). Employment gains were seen in wholesale and retail trade, manufacturing,educational services, and construction with agriculture seeing a decrease(Statistics Canada, 2017). Fullemployment in Canada is dependent on an unemployment rate of around 5.7% to5.8% (MNI, 2014). Since the unemploymentrate is below 6%, the top range for the Non-Accelerating- Inflation Rate ofUnemployment (MNI, 2014). The inflation rate as of October 2017 was 1.
4%, lower thanthe Bank of Canada’s target of 2%, which was due to slight price increase forgasoline (CBC News, 2017). TD senioreconomist James Marple stated “Wage growth has accelerated notably inrecent months and job growth has been concentrated in full-time positions.Alongside a lower Canadian dollar and more stable energy prices, this shouldset the stage for inflation to move toward two per cent over the nextyear.
” (CBC News, 2017). Canada iscurrently experiencing an inflationary gap as the output is below thepotential, since labour productivity has decreased. The business cycle Canada is currently in is an expansionperiod as we see the GDP increasing and the economy is in a growthpattern. “Mildly expansionary fiscalpolicy has supported growth in 2016 and 2017, hastening the economy’s return tofull employment.” (OECD, 2017).Canada uses fiscal and monetary polices to stabilize theeconomy. Utilizing fiscal policy todetermine their plan for expenditures “on a variety of items including benefits(for the retired, unemployed and disabled), education, health care, transport,defense and interest on national debt.” (Chand, n.
d.). The government estimates the amount of taxrevenue they will receive for the year and plan accordingly. The monetary policy is used to make changesin the money supply (Chand, n.d.
). “Changes in the money supply, as with changes in interest rates, areimplemented by Central Banks on behalf of governments.” (Chand, n.d.).
The Canadian government is addressing the issue of an agingworkforce through immigration, with the understanding that this cannot solvethe whole issue (Government of Canada, 2017). “In 1971, there were 6.6 people of working age for each senior.
By 2012,the worker-to-retiree ratio had dropped to 4.2 to 1, and projections put theratio at 2 to 1 by 2036, at which time five million Canadians are set to retire.”(Government of Canada, 2017). Immigrants also bring growth to the economyto close gaps in the labour market due to skill shortages and provideinnovation (Government of Canada, 2017). 20% of Canada’s population is made up of immigrants about 50% holdscience, technology, engineering and math degrees equivalent to the Canadianbachelor’s degrees (Government of Canada, 2017). The International Monetary Fund gave credit to the Trudeaugovernment for tax cuts for the middle class, expanded family benefits, andraised infrastructure spending through government spending and the low interestrates (InsideToronto.
com, 2017). A concernthat needs to be anticipated is the Trump administration’s promise to cutcorporate taxes that would weaken Canada’s ability to attract investors, aswell as what will become of NAFTA (InsideToronto.com, 2017).
The Bank of Canada should continue to be cautious inchanging interest rates and the monetary policy (InsideToronto.com, 2017). A careful eye should be kept on the housingmarket to avoid any sharp drops impacting the economy negatively and the priceof oil decreasing further (InsideToronto.com, 2017). While Canada is “one of the fastest growing economies in thedeveloped world” (Castaldo, 2017) the future is of concern. The GDP is in a growth pattern with theenergy sector in recovery and gains from manufacturing, wholesale and retailtrade (Castaldo, 2017). This could beimpacted by less consumer spending and a drop in the housing market (Castaldo,2017). Overall job growth is showing a reduction in unemploymenteven within the manufacturing industry, which has see the biggest hits (Castaldo,2017).
“Alberta, still on the mend, hasexperienced an uptick of more than 20,000 jobs since the start of theyear, too.” (Castaldo, 2017). Job growthin full time has matched part time this past year showing a decrease in theunemployment rate (Castaldo, 2017). Ifthe pattern continues there is a good chance that the unemployment rate couldcontinue to decrease. While the housing market has contributed to the growth ithas been an extreme level of growth that cannot be sustained. “The numbers are so strong that someeconomists are cautioning the Ontario government about implementing measures tocool the housing market.
” (Castaldo, 2017). Exports are the biggest concern, as the growth is low”Canada sunk back into a deficit of $972 million in February with exportsfalling 2.4 per cent.” (Castaldo, 2017). Reliance on a low dollar is not enough to compete and having to worryabout border-adjustment taxes will make exporting from Canada less attractive(Castaldo, 2017).
“Business investment is a relatively small share of GDP(about 12 per cent) but it’s an important indicator of future expectations, anddrives all sorts of other economic activity.” (Castaldo, 2017). This has been steadily decreasing since 2014,since the oil crash, and the chances that this will drastically change is low(Castaldo, 2017). While employment growth is steady, salaries are not as high,which is attributed to the loss of jobs in the oil sands that were highersalaries than what is available in other industries (Castaldo, 2017). With the minimum wage increases over the next2 years to $15, the wage growth will see an increase and there could bereduction in employment to offset the impact to the bottom line of businesses. Inflation is predicted to rise from 1.
6% in2017 to 2.06% in 2019 and drop to 1.93% in 2022 (Statista. 2017).
The Canadianeconomy has seen it’s share of ups and downs, but it is an overall strong andstable economy. However, it is highlydependent on the USA, so there are concerns of how the impact of NAFTA throughthe Trump Administration will affect exports and investment in Canada.