Canada's Growth Prospects Brightened by Exports to US

EXPORTS continue to drive Canada's economy, gaining steam from treaties reducing tariffs with the United States and Mexico.

With exports to the US surging, Canada's overall economic growth is expected to be steady at about 2 percent in 1996. But unemployment is stuck just under 10 percent - almost double the US rate - and the cloud of the separatist movement in Quebec continues to worry investors.

Economists expect the growth in the Canadian economy to continue to come from trade, especially with the US. And they hope that will translate into jobs.

"Almost 130,000 new positions were added to this country's payrolls from December through March," says Aron Gampel, an economist at the Bank of Nova Scotia in Toronto.

Among the Group of Seven industrialized nations, "Canada is now the ... leader in exports. Nearly half of private sector output is sent to foreign destinations," he says.

"Canada's balance of trade set a record in 1995," adds Denis Boudreau of Statistics Canada's Montreal office. The overall trade surplus was $28 billion (Canadian; US$20.6 billion).

Natural resources, from newsprint to potash, have seen prices rise, and that too has helped Canada's balance of trade. But numbers from Statistics Canada, the federal data collector, show the country is exporting more than just raw materials.

"The biggest push came from office machines, bolstered by shipments of computer-related equipment to the United States," the agency said of December 1995 trade figures. Figures show that since January of 1993, Canada's exports of office equipment have doubled.

Total exports to the US were $202 billion (US$149 billion) last year, up 13.4 percent on the previous year. That left Canada with a balance of trade of $33 billion in its dealings with the US, by far its largest trading partner.

Canada also saw a 22 percent growth in trade with Japan; its trade surplus with the Japanese tripled to $3 billion. Canada had a slight deficit with the European Union and other industrialized countries.

Economist Mr. Gampel says he is "upbeat" about the Canadian economy in 1996. One reason is the paydown of Canadian government debt.

"The federal government should start paying down debt for the first time in over a quarter century," he says. Federal government savings come from canceling generous payments to the provinces, mainly for social-welfare programs.

But that short-term hardship has led one forecasting group to lower its expectations for the Canadian economy this year. The Conference Board of Canada said on Tuesday that growth will be only 1.9 percent this year. That is half a point below its forecast of just thee months ago.

The Conference Board blames a "collapse" in government spending. "Fiscal restraint will remain the largest drag on the economy over the short term, especially in Ontario and Quebec as they struggle to get their fiscal houses in order," says Jim Frank, chief economist at the Conference Board.

On the domestic front, there are some bright spots in the Canadian economy.

Construction of new housing jumped 12.5 percent in March. One big reason is that mortgage rates are 3 percentage points lower than they were a year ago. The prime interest rate in Canada is 6.75 percent, more than a percentage point lower than rates in the US. That is unusual as American rates usually are lower than Canadian ones.

Meanwhile, wages are growing, up 1.2 percent in January, the biggest rise in two years. But that has not rekindled consumer spending in Canada. Economists say people are worried about keeping their jobs.

Canada's economic growth is uneven. The province of Quebec has been particularly hard hit as many companies leave for other parts of Canada and the US. Though no one comes right out and blames worries over Quebec separatism for plant closings and job transfers, economists say separatism is a concern. It also affects the country overall.

"What is certain is that the current unity debate is costing Canada in terms of higher interest rates and lower investment,'' says Mr. Frank of the Conference Board.

This week Paccar Inc. of Bellevue Washington announced it was shutting down its Kenworth plant at Sainte-Therese, Quebec, just north of Montreal, putting 900 people out of work. The plant had been on strike for eight months. Paccar blamed a drop in US demand. The labor union blamed the North American Free Trade Agreement, the treaty between the US, Canada, and Mexico.