OECD Economic Surveys : Canada 1978.

67 Pages·4.254 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
CANADA
JULY 1978
BASIC STATISTICS OF CANADA
THE LAND
Area (thousand sq. km.) 9976 Population of major cities
Agricultural area (% ofthetotal including their metropolitan
area) 1976 6.4 areas (1971 census):
Montreal 2743208
Toronto 2628043
THE PEOPLE
Population (1.1.1978) 23444200 Civilian labour force (1977) 10616000
Number of inhabitants Employment in agriculture
per sq. km. 2 (1977) 468000
Population, annual net natural Immigration (annual average,
increase (average 1973-77) 188400 1972-76) 172200
Natural increase rate per Average annual increase
1000 inhabitants in civilian labour force
(average 1973-77) 8.3 (1973-77, %) 3.3
PRODUCTION
GNP in 1977 (millions Origin ofgross domesticproduct
of Canadian dollars) 210132 (1976, % of total):
GNP per head (Canadian dollars) 8963 Agriculture, forestry and fishing 3.8
Gross fixed investment (private Manufacturing 18.8
and public) per head Mining and quarrying 3.6
(Canadian dollars) 2066 Construction 6.6
Gross fixed investment (private Public administration 7.0
and public) as % ofGNP 23.0 Other 60.2
THE GOVERNMENT
Government current expenditure on Composition of Parliament
goods and services (average (Number of seats):
1973-77, % of GNP) 19.9 House
Government gross fixed capital of Senate
formation (average 1973-77, Commons
% of GNP) 3.5
Federal Government current revenue Liberals 139 76
(average 1973-77, % of GNP) 18.4 Progressive
Federal direct and guaranteed Conservatives 89 16
debt % of currentexpenditure Social Credit 9 1
(average 1973-77, %) 118.3 New Démocratie 16
Independents 3
Vacant 8
Last election: 8.7.1974
FOREIGN TRADE
Exports: Imports:
Exports ofgoods and services as % Imports ofgoods andservices as %
of GNP (average 1973-77) 24.9 GNP (average 1973-77) 26.8
Main exports, 1977 Main imports, 1977
(% of commodity exports): (% of commodity imports):
Wheat 4.1 Industrial materials 18.6
Newsprint 3.4 Motor vehicles and parts 27.9
Lumber 5.4 Producers' equipment 20.0
Woodpulp 4.9 Consumer goods 18.7
Non-ferrous metals and alloys 4.4 Main suppliers, 1977
Motor vehicles and parts 23.4 (96 of commodity imports):
Other manufactured goods 13.5 United States 70.2
Main customers, 1977 United Kingdom 3.0
(% of commodity exports:) European Economic Community 5.6
United States 69.9
United Kingdom 4.4
European Economic Community 6.3
THE CURRENCY
Monetary unit: Canadian dollar Currencyunit per USt,
average of daily figures:
Year 1977 1.0634
Jne 1978 1.1210
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
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CANADA
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Review Committee.
The annual review of Canada
by the OECD Economic and Development Review Committee
took place on 3rd July 1978.
©OECD, 1978
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CONTENTS
Introduction 5
I Recent developments 7
Demand and output 7
Output and employment 11
Prices and incomes 12
External account 18
Economic policy 23
II The labour market 28
Medium-term trends 28
Demand and supply 31
Imbalances and labour market measures 37
Summary 40
III Short-term prospects and conclusions 42
Short-term prospects 42
Conclusions 45
Annex : Calendar of main economic events 49
Statistical annex 54
TABLES
Text
1 Demand and output 8
2 Current economic indicators 9
3 Selected price, wage and labour cost developments 14
4 Balance of payments 18
5 Public revenue and expenditure 24
6 Short-term prospects 43
Statistical annex
A Gross national product and expenditure 54-55
B Industrial production, employment and other business indicators 56-57
C Prices, wages and finance 58-59
D Balance of payments 60
OECD Economic Surveys
DIAGRAMS
1 GNP deviation from trend Canada and the United States 6
2 Capacity utilisation in manufacturing 10
3 Consumer price index 15
4 Labour productivity and unit labour costs 16
5 Financial and operating ratios of large industrial corporations 17
6 Balance of payments 19
7 Domestic and foreign interest rate movements 21
8 Money supply 27
9 Labour market and cyclical position 29
10 Unemployment rates in selected OECD countries 30
11 Actual and estimated business sector employment 32
12 Employment growth by age, sex and industry 34
13 Labour force growth by age and sex 36
14 Unemployment and job vacancies 38
15 Indicators of labour market imbalances 39
INTRODUCTION
Although economic developments in Canada last year appeared disap¬
pointing growth remained below expectations while inflation accelerated
and the current account failed to improve the process of adjustment to
eliminate the imbalances which had developed continued. The surge in consumer
prices experienced in 1977 stemmed essentially from external forces and in
real terms the foreign account registered a substantial improvement. Labour costs
have been brought under much better control and, taking account of exchange
rate movements, a marked improvement has taken place in the country's inter¬
national competitiveness. Although concern over inflation has imposed a cau¬
tionary attitude on policy stance, the "automatic stabilisers" built into the fiscal
system together with the indexation of personal income tax rates, have added
to the expansionary impact of the federal budget. However, this has been to
some extent counter-balanced by a tightening of stance on the part of other
levels of government. On present indications the next twelve months are likely
to see some further improvement in cost and external trade performance and
some recovery in domestic demand. Helped by indirect tax cuts, the inflation
rate should come down in 1978 and a further substantial improvement in the
country's labour cost position seems likely despite the fact that direct price and
wage controls are now being phased out.
A special area of preoccupation in the economy has been the growth of
unemployment. Despite the fact that over the past decade Canada has expe¬
rienced by far the fastest growth of employment in the entire OECD area, it
has also registered one of the highest unemployment rates which at present
is at a post-war record level. Part II of the present Survey examines in some
detail certain of the factors behind these developments. Both the demand and
supply sides of the labour market are analysed, including demographic deve¬
lopments, shifts in output structure and the impact of policy measures. Although
necessarily subject to considerable reservations on a number of accounts, given
the inevitable uncertainties attaching to such a complex area, the anlysis permits
some conclusions to be drawn about the functioning of the Canadian labour
market.
Prior to the examination of the labour market, Part I of the present Survey
looks at general economic developments in Canada over the most recent past
as well as the operation of economic policy. Part III assesses the economy's
short-term prospects and, drawing on the analysis in the earlier sections, conclu¬
des with a discussion of some main policy issues.
Diagram 1 GNP deviation from trend Canada and United States
Quarterly seasonally adjusted
%
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1950 51 52 53 M 55 56 57 5a 59 1S60 61 62 63 64 65 66 67 68 69 1570 71 72 73 It 75 76 77 1978
Sources: Canadian and United States National Accounts and Secretariat estimates.
Canada
I RECENT DEVELOPMENTS
Resulting from the prompt implementation of counter-cyclical domestic
policies, Canada was more successful than most countries in limiting the weake¬
ning of demand during 1974 and 1975. However, what appeared ath the time
to have been a revival during fiscal 1975-76 now seems in retrospect to have
been merely a temporary pause in a period of protracted weakness. Nevertheless,
the degree of slack in the economy is still much less than during the recession
at the beginning of the 1960s. Diagram 1 compares the situation with that in
the United States whose cyclical developments exert a powerful influence on
the Canadian economy. Whereas during 1973-74 output deviated more from its
medium term trend in the United States than in Canada, by the latter part of
1977 production had recovered to a. level closer to capacity in the United States
than in Canada. Preliminary national accounts indicate that the first quarter of
1978 was weak in both countries.
These developments in output give a measure of the adjustment which the
Canadian economy has been experiencing over the past several years following
a period during which domestic price and cost levels had got considerably out
of line with those in the country's main trading partners. During 1975 a large
deficit equal to almost 3 per cent of GNP opened up in the current account
of the balance of payments, and a deficit was registered in the merchandise
trade balance for the first time since 1960. Following implementation of a
broadly conceived anti-inflation programme in 1975 whose emphasis has been
on gradualness, cost and price pressures have been winding down. This trend
is perhaps most evident on the labour cost side as a number of external influences
have tended to mask underlying price movements. The growth of domestic
demand has been restrained since the latter part of 1976, with the impact on
private consumption being particularly felt last year when the growth of house¬
holds' real disposable income experienced a sharp slowdown, though a policy-
induced turnaround was evident during the first quarter of 1978. Following the
very marked decline in 1975, Canada has been fortunate in experiencing the
fastest growth rate of foreign markets in the OECD area, which has helped
sustain exports during this period and so eased somewhat the burden of adjust¬
ment.
Demand and output
Domestic demand failed to expand in 1977 as rapidly as had been expected
when last year's Survey was prepared. Although the shortfall was not great
the actual outcome being a H per cent increase compared with a forecast
2 per cent divergences within individual demand items were in certain
instances quite marked. Both public and private expenditures were below fore¬
cast, though the shortfall was greater in the private sector. Furthermore, the
volume growth of exports was also smaller than forecast, as indeed was the
increase in imports.
1977 witnessed an abrupt decline in the volume growth rate of private
consumption ; the average figure for the year of 2.8 per cent was far short of
OECD Economic Surveys
Table 1 Demand and output
Percentage volume change
1976 1977
1977 1974 1975 1976 1977 1 II I II
Î Bill.
Seasonally adjusted
Private consumption 122.3 5.1 5.4 6.4 2.8 5.7 5.7 2.1 1.4
Government consumption 43.4 4.0 3.9 1.9 2.0 4.9 -2.7 6.6 -2.0
Gross fixed investment 48.4 5.4 3.8 2.2 0.3 2.3 -5.0 4.0 -1.5
Public 7.0 5.5 4.3 -6.5 2.6 -4.8 -11.2 8.5 6.2
Private 41.5 5.4 3.7 3.8 -0.1 3.6 -3.9 3.3 -2.7
Residential 12.7 -0.5 -7.3 17.5 -4.6 18.9 -0.7 -5.8 -6.2
Non-residential
construction 13.6 7.6 13.4 -5.2 3.4 -7.6 -17.1 13.9 6.6
Machinery and equipment 15.2 7.8 3.5 3.4 0.3 4.1 5.3 1.9 -7.5
Final domestic demand 214.1 5.0 4.8 4.7 2.1 4.8 1.7 3.3 0.2
Stockbuilding? 0.1 1.2 -2.6 1.1 -0.8 4.4 -1.1 -1.2 0.3
Total domestic demand 214.2 6.1 2.1 5.7 1.3 9.2 0.6 2.1 0.5
Exports of goods and services 52.7 -2.0 -6.3 9.4 7.4 14.6 8.2 10.6 0.8
Imports of goods and services 57.2 9.8 -2.8 8.0 2.5 13.2 3.2 5.6 -4.2
(Foreign balance1) -4.5 -3.0 -0.7 -0.1 1.0 -0.4 0.9 0.8 1.3
Error of estimate 0.4 0.4 -0.2 -0.3 0.3 -0.2 -0.7 0.6 0.6
GNP 210.1 3.6 1.3 5.5 2.7 8.9 0.8 3.7 2.5
1 Annual rate of change over preceding half-year.
2 Percentage point contribution to GNP growth rate.
Source: StatisticsCanada,NationalIncomeandExpenditureAccount!.
the surprisingly strong 6 per cent recorded in the preceding year and indeed
of the longer-run average of 5i per cent1. Furthermore, a sizeable element
of the recorded expansion represented a "carry-over" effect from the second
half of 1976. A major factor behind this relatively weak development was
undoubtedly the squeeze on household real disposable incomes resulting from
the continuing slowdown in wage rate increases and the acceleration in inflation.
However, other factors also appear to have been at work since households did
not, as might have been expected under the circumstances, adjust the saving
ratio down markedly from its very high level2. Some econometric work carried
out by the Secretariat suggests that the continuing high rates of inflation and
unemployment have probably acted strongly to promote a cautious attitude
toward spending on the part of households3 in 1977. Furthermore, the increased
relative importance of the transfer element of disposable income probably also
helped boost savings. A shift is observable in the pattern of outlays compared
1 That is, for the period 1966-1976. As noted in last year's Survey (page 8) the
6} per cent average increase recorded in the 1970s was the highest experienced in the
developed OECD area.
2 Admittedly, the purely "technical" factor that the amount of tax reimbursements
to individuals, which normally are concentrated to the second quarter, was particularly
large in the final quarter of 1977 no doubt helped push up household savings, given
the usual lag between income and expenditure movements. However, this consideration
would account for about } percentage point of the saving ratio.
3 For a discussion of the effects of inflation see also, for example, Canada's
Economy - Medium-Term Projections and Targets. Department of Finance, Canada,
pp. 39-40.