Abstract
The Canadian economy bounced back strongly from the effects of the Asian financial crisis and the turmoil in world financial markets last year, reflecting a rebound in commodity prices, continued strong U.S. growth, and strengthening domestic demand, particularly investment spending. Executive Directors commended the authorities for maintaining sound macroeconomic and structural policies over most of the past decade, which had underpinned the strong performance of the Canadian economy, now in its eighth consecutive year of expansion, and welcomed Canada's participation in Financial System Stability Assessments.
1. Since the staff report (SM/99/314, 12/29/99) was issued, new data released indicate that the unemployment rate remains unchanged, while core inflation remained stable at about 1½ percent through December. Over the past few weeks, the Canadian dollar has appreciated, while interest rates have risen moderately in Canada, although they still remain below those in the United States. The thrust of the staff appraisal is unchanged by these developments.
2. Robust growth in employment offset a rise in the labor force, keeping the unemployment rate stable at 6.9 percent in December. All the increase in employment was in full-time jobs. These gains were also evenly distributed across age groups, with youth and adult male employment rising markedly. As a result, employment grew by about 2¾ percent on average in 1999, broadly in line with its growth rate in 1998, but significantly above the 1½ percent average growth rate recorded in 1992–97.
3. Core consumer price inflation remained largely unchanged in December 1999, rising by about 1½ percent on an annual basis, while the overall CPI rose by about 2½ percent, primarily reflecting higher energy prices. On an average annual basis, core inflation rose by 1.4 percent in 1999, compared to 1.1 percent in 1998; the overall CPI rose by 1¾ percent in 1999, compared to 1 percent in 1998.
4. Stronger economic conditions in Canada and in world commodity prices have contributed to an appreciation of the Canadian dollar to around 69 U.S. cents in late January. Interest rates in Canada have risen since end-1999 by about 20 and 40 basis points at the short and long end of the yield curve, respectively, broadly in line with those in the United States. The negative differential between Canadian and U.S. interest rates has remained largely unchanged since late December, with short-term Canadian interest rates about 40 basis points lower than in the United States and long-term Canadian interest rates about 20 basis points lower.
5. In a recent speech, Bank of Canada Governor Thiessen said that the Bank will begin publishing updates to its Monetary Policy Report (currently published in May and November). The updates will be released in February and August in order to increase the flow of information between Monetary Policy reports to market participants.