Interest rate pressure
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Growth has been higher than expected so far this year, and the economy is now estimated to be operating close to full capacity. The pace of activity should remain buoyant up to the beginning of 2005, before cooling down to near potential rates of around 3%. With soaring oil prices and easing capacity constraints, inflation is expected to hover above the mid-point of the target range until next year.
The Bank of Canada needs to continue raising interest rates toward their neutral level to ensure adherence to the inflation target. The government should avoid any easing of the fiscal stance at this juncture, despite the unexpectedly large surplus recorded for the last fiscal year. Great vigilance should be exercised over spending, in particular with regard to additional transfers from federal to lower levels of government.
| Population (000s), 2003 | 31 630 |
| Area (000 sq km) | 9 976 |
| Currency | Dollar |
| GDP (Billion USD), 2003 | 856.6 |
| Life expectancy at birth (Women, Men), 2001 | 82.2, 77.1 |
| Total labour force (000s), 2003 | 17 102 |
| Government type | Confederation |
| Indicators | % change unless otherwise indicated |
|---|
| 2004 | 2005 | 2006 |
|---|
| GDP growth | 3.0 | 3.3 | 3.1 |
| Household savings ratio | 1.5 | 1.6 | 1.7 |
| Consumer price index | 1.9 | 2.0 | 1.8 |
| Short-term interest rate (%) | 2.5 | 3.5 | 4.2 |
| Unemployment rate (%) | 7.2 | 7.1 | 7.2 |
| General government financial balance (% GDP) | -1.1 | 1.2 | 1.0 |
| Current account balance (% GDP) | 3.4 | 3.9 | 4.3 |
Source: OECD©
OECD Observer No 245, November 2004
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