Budget 1997 Building the Future for Canadians - Budget Main Page -

Fact Sheet

Restoring Confidence in the Country's Finances: The Economic Situation

A strengthening and growing economy

The economic indicators of the nation are the most positive they have been in years:

• Interest rates have fallen dramatically. Short-term rates have fallen by about 5 1/2 percentage points over the past two years and are at their lowest level in about 35 years. The prime lending rate is at its lowest level in 40 years. Short-term interest rates have also dropped relative to those in the United States, and are now below U.S. rates for the first sustained period since the early 1970s.

• Inflation remains firmly under control at its lowest sustained level in three decades -- within the target range of 1 to 3 per cent set by the federal government and the Bank of Canada.

• Economic growth in the third quarter of 1996 was at an annual rate of 3.3 per cent, the best since late 1994. Partial gross domestic product (GDP) data suggest that the fourth quarter may have been even stronger.

• Although the unemployment rate drifted upward in 1996 and is unacceptably high, private sector job creation has been healthy with 221,000 jobs created in 1996 -- nine out of 10 of which are full-time. The overall job creation record would have been better if public sector job losses had not overshadowed the stronger private sector job creation. Since September 1996, job creation has picked up as the economy generated some 91,000 new jobs.

• Our international competitiveness vis-à-vis the U.S. remains at one of its best levels in the past 46 years.

• In 1996, Canadian exports reached record-breaking highs and our merchandise trade balance -- exports over imports -- is running at its highest annual surplus ever.

• Our current account balance (the difference between the payments we make to foreigners and the payments we receive from them) went into surplus in the second and third quarters of 1996 -- the first surplus since 1984. Canada's net foreign indebtedness has been declining as a share of GDP since 1993.

• Consumer confidence and spending both rose in the fourth quarter of 1996 -- extending steady improvement throughout the year. Sales of durable goods have increased significantly in response to lower interest rates with new motor vehicle sales up 8 per cent.

• The housing sector has rebounded with house resales soaring in late 1996, reducing the inventory of unsold houses. In January 1997, housing starts rose to about 45 per cent above their recent low -- the highest level in more than two years.

• Business confidence is at a 20-year high with most businesses expecting improved financial positions over the next six months and using much more of their capacity. The percentage of businesses that think now is a good time to invest reached its highest level on record. Business investment jumped over 20 per cent at an annual rate in the third quarter of 1996.

Developments in late 1996 show a strengthening economy

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