Tuesday, April 27, 2004

SPOTLIGHT: The economy

'Biblical' series of shocks

Canada's economic growth slowed considerably in 2003 when major developments in the country revolved around international events, according to a new analysis.

Real gross domestic product advanced 1.7% last year, about half the pace of 3.3% in 2002. Canada and Germany were the only two G7 countries in which economic growth slowed last year. Still, Canada was in the mid-range of G7 growth, after leading the way in 2002.

So far this decade, annual growth in Canada has averaged 2.3%, half the pace of 5.0% at the height of the economic boom between 1998 and 2000.

For Canada, the major economic event last year was the turnaround in the Canadian dollar against the US greenback. The 21.7% increase from 63.39 cents US to 77.13 during the year was the largest 12-month movement up or down in Canada's history.

Other events clearly illustrated that increasing global integration, especially in trade and direct investment, also raises Canada's vulnerability to situations over which it has little control.

There was much discussion during the year over the seemingly biblical series of negative shocks to the economy: the SARS epidemic in Toronto, mad cow disease in Alberta, a strike at Inco, the power blackout in Ontario, a hurricane in Nova Scotia and forest fires in British Columbia.

However, there is no statistical evidence that the disasters of 2003 were a significant factor in the economy's slowdown for the year as a whole, although they affected the quarterly distribution of growth.

Loss of tourism

The largest persistent impact of any of these events last year appears to have been the loss of tourism in Canada, where output fell by the equivalent of 0.1% of gross domestic product.

However, not all of this can be attributed to SARS. The slide in tourism began after September 11, 2001, and was further compounded by the war in Iraq and last year’s appreciation of the loonie.

The small impact these events have on GDP reflect the enormous size of Canada's economy today.

Compared with annual GDP of $1.2 trillion, even a major event such as the $1 billion (at annual rates) lost to the Inco strike is barely 0.1% of output.

The article "The economy: Year-end review" is available in the April 2004 issue of Canadian Economic Observer.

For more information, contact Philip Cross (613-951-9162), Current Economic Analysis.

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© 2004, Statistics Canada.