Governments Expect Canada's Economy To Create More Jobs

THE meeting May 31 of Canada's 11 finance ministers, one from the federal government and one from each of the 10 provinces, was just about over when the news broke.

The group was there to discuss what could be done about the state of the economy when the latest growth statistic hit the wires: Canada's economy grew by 0.7 percent in the month of March alone, the biggest monthly jump in almost two years. Growth in the first quarter was one full percentage point.

The figures were beyond expectation. The budgets drawn up by the federal and provincial governments were based on forecasts of 2.9 percent growth this year. If first-quarter growth continues, Canada's 1993 growth rate could be 4 percent.

"It's showing signs of a more broadly based recovery than we've seen over the past half year and I think that's a very good sign of things to come," says Jason Myers of the Canadian Manufacturers' Association. Growth was strongest in the manufacturing sector, particularly in the industrial heartland of Ontario, the region hit hardest in the past three years of recession and sluggish growth.

The ministers met in Ottawa to deal with the national debt, a staggering total of $700 billion (Canadian; US$551 billion), as a result of government deficits.

The provincial ministers of finance called for lower interest rates to stimulate the economy, and asked John Crow, governor of the Bank of Canada - the central bank - to stop fighting inflation.

"What we are expecting from the Bank of Canada is a monetary policy that is comparable with the economic situation," says Quebec's minister of finance, Gerard Levesque. "We have to realize interest rates are too high." Interest rates in Canada, while slightly higher than in the United States, are at a 21-year low.

"These are a very positive set of numbers for both the month and the quarter," says Philip Cross, chief analyst at Statistic Canada. Other economists say the politicians' main worry, Canada's 11.4 percent unemployment rate, will right itself as long as there is continued growth.

"We're forecasting an increase of another 25,000 jobs," says Patti Croft, senior economist with Wood Gundy. The figures, expected by the end of the week, will confirm that the economic growth numbers will be translated into jobs. "We're starting to see the employment trend begin to firm," she says.

Growth has been strong in the automotive sector, with Canadian exports to the US leading the way. "There was considerable demand from the United States with the sales of autos and high-tech equipment accelerating," says Aron Gampel, economist with the Bank of Nova Scotia in Toronto. "Unfortunately, this hasn't spilled over to the consumer side."

Apart from the latest numbers on the economy, the biggest financial news in the past month has been tax increases. In an effort to reduce deficits, the provincial governments of Ontario and Quebec raised taxes and in turn lowered expectations of economic growth. "I don't think a 4-percent annual growth rate will be sustained for the rest of the year," says Mr. Gampel of the Bank of Nova Scotia.

Provincial government budgets, with their higher taxes, are the biggest threat to continued growth, some economists and bankers say. Consumers worry about a dip into another recession and taxes taking a big bite out of their after-tax take-home pay. "People just simply won't have the money to spend because their discretionary income will take quite a beating," says Mr. Myers of the Canadian Manufacturers' Association.

One Toronto banker, who estimates he will pay an extra $10,000 (Canadian; US$7,866) in income tax following the Ontario provincial budget, says the recovery might slow. "With that big a tax increase, I'm afraid we won't be able to sustain these growth levels."