ACIC | Canada

Economy of Canada

The economy of Canada is quite advanced and most of the people enjoy high standard of living. This is closely tied to a number of factors; the wealth of natural resources, the strength of its manufacturing and construction industries, the health of the financial and service sectors, the ability to span distances using communications and transportation technologies, dynamic trade relationships with other nations and Canada's ability to compete in a global marketplace.

 Since the recession of the early 1990s, The Canadian economy has grown more rapidly than the other developed countries. The success can be attributed to several factors, including low inflation, low interest rates, and a low Canadian dollar (with respect to other major currencies), all of which helped exports to grow. During the year from 1986 to 1995, the Canadian economy grew 20.4 percent and reached a GDP of C$776.3 billion, representing a per-capita income of C$25,900. In 1999 it was C$976.7 billion. The mining, communications, utilities, trade, and financial services sectors grew the most in output, while employment growth was greatest in nongovernmental services. At the same time, the proportion of GDP accounted for by federal government expenditure decreased from 23.1 to 15.2 percent, the result of the sale of several large government-owned corporations as well as reduced program spending.


Exports and Imports


Canada has an abundance of natural resources, such as forests, minerals, fish, and hydroelectric power, all of which has helped Canada focus their economic development on the export of raw materials and around 33.6 percent of its GDP is dedicated to exports. This has in turn led to the conservation of the resources, which is a top priority of the nation.


Main exports include motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment; chemicals, plastics, fertilizers; wood pulp, timber, crude petroleum, natural gas, electricity and aluminum. And machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity, durable consumer goods are Canada's main imports. However, some problematic issues often relating to the issues of subsidies continues to thrive between the US and Canada. American moves, which impact on Canadian exports - in the form of tariffs on Canadian timber and increased subsidies for US farmers - have created particular tension.



Canada joined the G8 in 1976, at the Puerto Rico Summit hosted by the United States and has hosted three Summits since 1976: in 1981, in Ottawa-Montebello; in 1988, in Toronto; and in 1995, in Halifax.

Canada which is currently holding the chair is responsible for hosting and organizing the Summit. This annual meeting of Leaders provides an opportunity for face-to-face discussions on key issues. The Chair also bears the responsibility of speaking on behalf of the G8 and of engaging non-G8 countries, non-governmental organizations and international organizations.

Main Industries

Canada has four main industries. They are forestry farming, fishing, and mining.


B.C. has more forests than any other province. In fact in B.C. it employs more people than any other job. Also the lumber from B.C. compromises for a large part of the world trade.


There is a fair amount mining in Canada. The Albertan badlands contain a good deal of oil. In B.C., Ontario, and Quebec there is also a good deal of mineral mining.


There is a good deal of farming in Canada. The flat plains of the prairies are perfect for fields and pastures. There is a large amount of dairy farming in B.C. and Quebec.


There is a large amount fishing of the coasts of B.C. and the Maritimes. On the west coast they fish for sole, clams, oysters, crab, cod, herring, halibut, shrimp, prawns, and salmon. On the east coast they fish for haddock, clams, oysters, scallops, sole, flounder, cod, herring, swordfish, redfish, halibut, lobster, salmon and pollock.


More than 1 million new jobs were created from 1994 to 1998. Employment growth was exceptionally strong in 1999, reflecting the sustained boom in the overall economy: in that year alone, 391,000 jobs were created. This growth was led by resurgence in the manufacturing sector, particularly the computer and electronic parts industries. Growth in the number of full-time jobs was the driving force behind the surge in employment. About 383,000 full-time jobs and 8,000 part-time positions were created in 1999. Transportation services (especially trucking), warehousing and the trade sector posted gains in employment. The scientific and professional services industries also expanded, as Canadian businesses hired more technicians to upgrade their computer systems in advance of the ‘millennium bug.’

Employment in the primary industries suffered in 1999, however, from low commodity prices, particularly for agricultural goods.

Low grain prices and weak forestry and mining industries kept employment increases to a minimum in Manitoba and Saskatchewan. However, Alberta’s employment rate rose thanks to Calgary’s strong economy and an expansion of the province’s construction, management, administrative, professional, scientific and technical services industries. Rebounding commodity prices gave British Columbia a modest boost in employment in the second half of 1999.

The overall job growth in Canada drove the unemployment rate down to an average of 7.6% in 1999. The unemployment rate ranged from a high of 16.9% in Newfoundland to a low of 5.6% in Manitoba.


The Canadian Dollar

When the paper ‘greenbacks’ gave way to the ‘loonie’ coin in 1987, the Canadian dollar was in the middle of an upward trend against the U.S. dollar. Lasting the rest of the decade, the upswing was motivated by various factors, including a buoyant economy and a tightening of monetary policy. The dollar closed the 1980s at US$0.863.

The loonie continued to climb against its American counterpart in the early 1990s. Cresting at US$0.893 in November 1991, it began to depreciate sharply thereafter. Persistent government budgetary problems, decreasing commodity prices and large current account deficits were the primary cause of this downward trend, which was broken up by a brief period of stability through 1995 and 1996. Weakness in the currency flared up once again in 1997 and continued for the rest of the decade, despite a strong Canadian economy. Rebounding over the course of 1999 from a historic low of US$0.638 in August 1998, the dollar averaged US$0.673 over the year.

As with the currencies of most industrialized countries, the value of the Canadian dollar is set by a floating exchange rate mechanism. Whereby its price fluctuates according to international market conditions, these conditions, as well as massive speculative activity, can sometimes put the Canadian dollar through periods of volatility and price instability. During these periods, the Bank of Canada may intervene in the international market by buying or selling Canadian dollars. When the Bank buys large amounts of Canadian dollars, demand for the currency is stimulated and upward price pressures result. Selling generates the opposite effect.

Though Canada has experimented with fixed or managed exchange rate policies, it has generally favored a flexible exchange rate. Recently, the debate on exchange rate regimes has been reviewed in Canada and abroad. The outcome will depend on national circumstances and preferences of countries.


Role of Government vs. Market

Canada closely resembles the US in its market-oriented economic system, pattern of production, and affluent living standards. The State's role is to control budget and to set the rules for and collects most of the personal and corporate income taxes. The federal government also provides services like, old age security (OAS) payments, employment insurance payments, student loans to Canada's people. Further, agricultural subsidies, the Royal Canadian Mounted Police (RCMP) and funding to crown corporations like the Canadian Broadcasting Corporation (CBC), Via Rail, and Canada Post are also done by the Government of Canada. The government also manages the Canada Pension Plan (CPP), which is funded by employer and employee contributions. Besides, the government is responsible for allocating money to the provinces to deliver other services such as health, education, and social services.

Thus, despite being a market economy, Canada does have a significant room for

Structure and Strength
Despite the transformations now rippling through the Canadian marketplace, the most dramatic structural change our economy has undergone is the rise of the services sector. Though our goods-producing industries account for 33% of our national economy, the Canadian services sector is much larger, employing three out of four Canadians and generating two-thirds of our gross domestic product.

What exactly makes up the Canadian services sector? It’s easy to picture the physical products churned out by our manufacturing, agriculture, mining, forestry and construction industries, but the value of the services sector is less tangible. Goods need to be delivered, and this involves storage services, truck drivers, rail carriers and bicycle couriers. The actual exchange of goods often requires legal and financial services to process the transactions. Canadians also want to shop, eat out, and be entertained by movies, operas, concerts and ballets. And nearly every aspect of government activity—from health care to education to national defense—is a service provided to Canadian citizens.


Economic size and growth

For Canada, 1999 marked the eighth consecutive year of economic growth, with our GDP at factor cost reaching $753 billion. After factoring out inflation, GDP grew by 4.3% in 1999.

The services sector also grew in 1999—by 3.7%. Wholesale trade provided some of the thrust, growing at 6.7%, largely because of substantial sales of computers, computer software and other electronic machinery. A 7.8% growth rate in business services was propelled by a 23.3% gain in computer consulting and related services, much of which was likely influenced by the Year 2000 computer ‘bug’.

After stagnating in 1998, the construction sector rebounded in 1999, growing by about 4%. Construction was bolstered by significant increases kn residential housing (5.8%) and non-residential building (4.8%). The modest 1.1% growth rate of the primary sector can be largely attributed to weak commodity markets, particularly for the mining, quarrying and oil well industries. Mining in Canada experienced a decline in real output in 1999, with metal mining falling 9.3%, crude oil and natural gas down 2.4% and drilling activities dropping 5.3%.


Productivity is another useful indicator of economic health. Increases in productivity can reflect improvements in a number of critical areas of a modern economy, such as advanced production techniques or knowledge. Productivity also provides the foundation for improvements in a country’s standard of living. Wages and salaries grow when businesses become more efficient, and higher production efficiency also allows the prices of goods and services to drop. Increased productivity is also a sign of a highly skilled labor force, with more workers using machines to produce goods, and improved management practices.

Labor productivity—the measure of real GDP generated per hour of work—is a useful reading of the strength of our work force. Strong labor productivity can mean higher rewards for our workers. Since higher productivity lowers prices, better wages and living standards for all Canadians can emerge as a result. Bolstered by a jump in improvement in the manufacturing sector, labor productivity in 1999 grew 1.4%, almost three times the pace set one year before (0.5%). The productivity of workers increased 2.1% in the goods sector and 1% in the services sector.

Though not traditionally considered a high-tech industry, the agriculture sector in 1999 led in productivity, with an advance of 13.4%. Other substantial gains could be seen in forestry (7.2%), communications and other utility industries (6.8%), wholesale trade (5.2%) and mining (4.5%).


Nothing can be more deflating to Canadian wallets than inflation. Back in 1981, with inflation running at 12.4%, Canadians had to live with the uncomfortable knowledge that what they bought that year would cost significantly more the next.

Inflation especially hits home for mortgage-holders. For example, a 200-basis point increase in the mortgage rate pushes the cost of a $100,000 mortgage up by $1,624 a year. Small businesses feel an even sharper pinch: a similar increase in interest rates would push the interest on a $2,000,000 loan up by $28,000 annually. Recognizing the importance of maintaining a stable inflation rate, the Bank of Canada introduced inflation control targets in 1991, when inflation was 5.9%.

The inflation control targets assist the Bank in determining what monetary policy actions are needed in the short- and medium-term to maintain a relatively stable price environment. One of the most important benefits of inflation targets is their role in focusing expectations of future inflation. This in turn feeds back into the kind of economic decision-making—by individuals, businesses, governments—that tends to reinforce the capacity of the economy for continuing non-inflationary growth.

The Bank of Canada sets the target inflation rate between 1% and 3% and maintains this even keel by raising or lowering interest rates. If these annual targets are exceeded, the Bank can reduce demand for goods and services by raising interest rates. If inflation is running lower than 1%, the Bank can reduce interest rates to help stimulate consumer and business spending. It has been highly successful in keeping inflation in check over the past decade. Since 1992, the inflation rate has averaged 1.5%.

Interestingly, regulation of interest rates by the Bank of Canada can take anywhere from 18 to 24 months to work its way through the economy and have a significant impact on inflation. A dynamic process of change occurs: first, spending rises or falls, depending on the rate; changes in production and employment follow; and then prices are altered accordingly—ultimately changing the inflation figures. As a result, the Bank of Canada must constantly peer over the economic horizon for any signals that indicate the emergence of upward or downward pressures on prices down the road and then take corrective measures far in advance.

Strong inflationary pressures have been kept in check—despite the upward pressures of the extremely robust Canadian economy of late. Other developments have also helped keep inflation down. Government deficits have been virtually eliminated, accumulated public debts are starting to shrink, and a major restructuring of many Canadian businesses during the 1990s has provided a firm base for price stability and has increased the efficiency of business operations.






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