Recession Tells A Tale of Two Canadas

Downturn prods restructuring in Ontario, nation's industrial core. GLOBAL COMPETITION

CANADA'S economic troubles are so pervasive that schoolchildren here sing a rhyme blaming hard times on the prime minister: "We're teeny, we're tooney, we can't afford a loony, all because of Brian Mulroney and the stupid GST." A loony, by the way, is what Canadians call their one dollar coin, and the GST is the Goods and Services Tax which came into force on the first day of January last year.

While economists agree that times are tough, they don't totally agree with the schoolyard analysis that this recession was caused solely by taxes.

"The GST along with other forms of taxation ... [is] all part of Canada's losing its competitive position in the world," says Aron Gampel, vice president, economics, of the Bank of Nova Scotia in Toronto. "But it isn't just taxes. Canadians can't escape the global recession."

The hardest-hit provinces are Ontario, the nation's manufact-uring core accounting for 40 percent of national output, and Que-bec, a manufacturing area hit by apprehension about whether the French-speaking province will separate from Canada.

In Ontario, which boomed after the 1981-82 recession, 2,100 job layoffs were announced in one day last week; many of the jobs won't be restored.

"I think the restructuring going on in Ontario is quite deep and quite profound," says Benoit Durocher, an economist at the Royal Bank of Canada.

Out west, it is another story. In Alberta and especially British Columbia there has not been a recession. And Canada's western provinces, which do not rely on an old manufacturing base, are expected to emerge even stronger after the recovery.

"We see British Columbia being the big winner in the recovery of 1992," says Sharon Hennessey of DRI Canada in Toronto. British Columbia's economy has been helped by immigration from Hong Kong and other parts of Asia, stimulating housing construction, retail, and services. Immigration from Hong Kong into British Columbia was up 30 percent in 1991 and that follows a 26 percent increase in 1990.

Ontario's economy will bounce back this year say some economists, but mainly because it has already fallen so much. "What we're expecting is a consumer- led recovery spurred by lower interest rates and more affordable housing," says Ms. Hennessey.

Housing prices in Toronto, Ontario's capital, have dropped like a stone during this recession. An example: a year ago a house in a fashionable Toronto district went on the market at $459,000 (Canadian; US $398,958); it sold recently for C $298,000.

Retail sales in central Canada are in a major slump. Several large chains have closed, laying off thousands of employees. People nervous about jobs are not spending.

"I used to ship 30 to 40 percent of my goods east. Now that is down to 15 percent," says Irving Estein, a clothing manufacturer from Winnipeg, Manitoba. "The competition is killing our business. And it isn't just free trade [with the United States] it's from all over the world," says Mr. Estein.

Canada's economy may be on a fast-growth track this year, according to the Organization for Economic Cooperation and Development. The Paris-based organization predicts that Canada's GNP will grow by more than 3 percent in 1992, one of the best growth rates of the major industrialized economies.

The Royal Bank of Canada, the nation's largest commercial bank, says Canada's GNP will expand by just 2 percent. The bank also said that if the constitutional talks aimed at resolving the issue of Quebec's place in Canada were to collapse, "then the economic conditions could be even worse."