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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.


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