Canada’s Rising Economy Leaves the Jobless Behind

Thanks to three years of government austerity, a tough anti-inflation stance by the central bank and a boom in trade with the United States, the Canadian economy, which not long ago was derided by international investors as similar to that of a banana republic, may be poised for a long-awaited breakthrough.

Recent economic indicators point that way. Government deficits have dropped dramatically; mortgage and short-term interest rates have hit their lowest levels in nearly 40 years; inflation as measured by the consumer price index is hovering at 1.5% annually; the trade surplus is expected to exceed last year’s record $20.9 billion; and the Canadian dollar has strengthened against world currencies.

“The signs we’re seeing are the leading edge of a very strong growth performance at the end of this year and going into next year,” said William Robson, an analyst at the C.D. Howe Institute, a Toronto think tank. That echoes conclusions of other economists, such as Paul Summerville of RBC Dominion Securities. In a recent newsletter, Summerville predicted “an extended period of out-performance, probably until the end of the decade.”

The International Monetary Fund has also joined in, forecasting 3.2% growth next year in Canada, the highest among the Group of 7 major economies.

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Indeed, the good news seems to turn up every place except where it would be most welcome: the Canadian job market. About one in 10 Canadian workers remains out of a job, an unemployment rate nearly twice as high as in the United States. Not surprisingly, consumer confidence remains depressed and Canadian retailers are bracing themselves for another bleak holiday season, a December phenomenon here that has become almost as predictable as snow.

Frustrated by what it called “the longest stretch of unemployment above 9% since the Great Depression,” the Canadian Labor Congress this month urged Prime Minister Jean Chretien to abandon his strict deficit-reduction strategy in favor of direct government job programs.

“After six years of high unemployment, it should occur to this government that waiting for the market to create jobs isn’t working,” congress President Bob White said.

Meanwhile, those to the right of Chretien’s centrist Liberal Party are clamoring for a general tax cut.

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So far, Chretien and Finance Minister Paul Martin have held to their program of gradual deficit reduction mainly through spending cutbacks. The Liberals have backed controversial decreases in support for national health care, unemployment benefits and the arts. Similarly, nine of the country’s 10 provinces--all except British Columbia--have erased their deficit or are on target to eliminate it.

This has eroded the biggest source of skepticism about Canada in the world investment community--the persistent inability of previous governments to spend less than they took in.

Optimistic forecasters suggest a rise in employment is just around the corner. Economist Summerville, for example, said joblessness could drop by mid-1997, though he expects job creation to really be felt in 1998.

Summerville argued that Canada is struggling through a fundamental economic restructuring, shifting focus from personal and government consumption to investment and world trade. As evidence, he noted that exports as a share of gross domestic product have risen from 28% to 42% in the last six years.

He reasoned that Canadians are prepared to tough out a few more months of high unemployment in the expectation that the new Canadian economy will be better in the long run.

“They know that the disease is the problem, not the medicine,” Summerville said.