Click chart for enlargement
Global Economic Growth Outlook |
Real GDP Growth, % |
|
1999 |
2000 |
WORLD |
3.1 |
3.8 |
United States |
4.1 |
4.0 |
Japan |
0.6 |
1.0 |
Germany |
1.4 |
2.8 |
France |
2.7 |
3.5 |
United Kingdom |
1.9 |
3.2 |
Italy |
1.3 |
2.6 |
Canada |
4.2 |
3.6 |
Other Advanced Economies |
3.5 |
3.6 |
Developing Countries |
3.5 |
4.8 |
Russia & others in Transition |
0.8 |
2.8 |
Based on various sources, available on request. |
|
|
|
INTERNATIONAL AND NATIONAL
ECONOMIC ENVIRONMENT
International Economy
The world economy grew by an estimated 3.1% in real terms in 1999. Most
forecasters had expected growth to be lower, however, the world economy had
a faster than expected recovery from the financial and economic crisis that
struck much of Asia and Latin America. Consequently, many countries
performed better than expected. The Japanese economy, for example, grew
about 0.6% last year compared to earlier predictions of a decline of as much
as 1.4%.
Key European economies posted moderate growth while developing countries
had strong growth of 3.5%. Russia and other countries in transition from
centrally planned economies posted growth of only 0.8%. Growth in these
countries has been hindered by problems including weak currencies,
corruption, crime, a poor social safety net, and inadequate regulation and
oversight. The 1999 growth, while weak, did mark the second year of growth
in the 1990s and the outlook is for much stronger growth this year.
The U.S. economy continued to strengthen, growing by 4.1% last year. A
booming technology sector and rising productivity have enabled the U.S. to
achieve strong growth in recent years despite limited growth in its labour
pool. The unemployment rate (at 4.0% in January 2000) is the lowest in 30
years. The current economic expansion is the longest in U.S. history having
begun in the second quarter of 1991.
Real growth in the world economy is expected to accelerate to 3.8% in
2000 due primarily to stronger growth in Europe and developing countries.
Japan is expected to experience continued slow growth associated with
structural issues in its economy including high government deficits and
problems in its financial sector. At the same time, Japanese interest rates
are so low that there is little scope for economic stimulus through further
rate declines. The U.S. economy is expected to remain strong with growth of
about 4.0%.
U.S. economic performance has surprised analysts by the absence of
inflationary pressures during its recent period of strong growth. The U.S.
Federal Reserve, however, is concerned that prices and wages will increase
more rapidly if firms cannot expand output fast enough to satisfy rising
demand. Consequently, the Federal Reserve has been tightening U.S. monetary
policy by raising its benchmark lending rate by a full percentage point over
the past year. A one-half point increase is expected by mid-year and further
rate increases can be expected if there are signs of rising inflation.
Canada
Canada had the fastest growing economy among the G-7 industrial countries
in 1999, with real GDP expanding by 4.2%. This growth was about double what
forecasters had expected at the start of the year when the outlook was
cautious due to concerns about low commodity prices and weakness abroad.
Canada, as a major trading economy, benefitted significantly from the
rebound overseas, continued strong growth in the United States, its main
trading partner, and a weak currency relative to the U.S. dollar.
Strengthening of many commodity prices, such as base metals and oil, also
helped. Employment grew by 2.8% in 1999 enabling the unemployment rate to
decline to 7.6%. The seasonally adjusted unemployment rate stood at 6.8% in
December 1999, the lowest since April 1976.
Highlights of Personal Income Tax Changes Effective
in 2000
-
Restoration of full indexation for inflation
-
Rate on middle income tax bracket to fall from 26% to 24% on July
1.
-
Enrichment of the Canada Child Tax Benefit.
- Elimination of the federal deficit reduction surtax on Canadians
with incomes up to about $85,000.
- Provincial tax rate reduced from 69% of basic federal tax to 62%.
|
In 2000, economic growth is expected to remain strong at 3.6% with
employment advancing by 2.4%. Exports and investment are expected to be
major contributors to growth. Higher commodity prices and strength in the
economies of Canada’s major export markets will be important factors in
the expansion. Domestic consumption will benefit from federal and provincial
tax cuts that will boost personal disposable incomes leading to higher
consumer spending. Since mid-1999, the chartered bank prime rate has climbed
from 6.25% to 6.75% (February 2000). Canadian interest rates are expected to
increase, following U.S. rates.
|