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... of GDP, oil usage has declined 50 % in the past 20 years in the U. S. Energy is not as large a share of the household pocketbook as it used to be either. The rise in prices, however, has increased headline inflation. Core inflation is still a modest 2. 6 % in the U.
S. and a mere 1. 3 % in Canada. No worry there. If anything, rising heating bills will slow the growth of discretionary income and contribute to the slowdown in economic activity. This does reduce profit margins for many companies and, of course, improve the profit growth in the energy sector.
Steve: Why do you think Canada will outpace the US in growth next year. Is it a function of interest rates or production? Sherry Cooper: The reason is more to do with catch up. Our basic industries are still doing well, while they have already slowed in the U. S. We are a net exporter of oil and gas, while the U.
S. is a net importer. Our economic generally lags the U. S. , our stock market has outperformed and our dollar has fallen, which does spur tourism and exports. This won't last for long, however. If the U.
S. continues to decelerate, so will we. DTC: What effects do you see the upcoming Canadian federal election having on the economy? Sherry Cooper: It is generally believed that the Liberals will win again, and most likely a majority government if the polls are to be believed. Even if they don't, however, the Alliance and the Liberals are calling for meaningful tax cuts. That is great news for the economy.
I expect Canadian growth to remain strong -- 3. 6 % next year. Ali G: Do you think that cutting taxes is a good way to boost the economy? Sherry Cooper: Absolutely. Tax cuts spur growth, increase entrepreneurial spirit and make us more competitive. The tax cuts also enhance productivity, so they are not inflationary. We still have a way to go to close the tax gap relative to our most important competitors.
The beauty is, tax cuts generate more tax revenue, thanks to enhanced growth. That way, the pie gets bigger and everyone gets a bigger slice. They do not mean that the social safety net must shrink. George: I am in my late 20 's and I have participated in many discussions regarding my pension. The arguments are, don't rely on the C. P.
P. when I retire but plan a strong RRSP account to live off of. What will be the state of the Canadian Pension Plan in 30 years? Sherry Cooper: Probably ok, but even so, the payments are relatively small.
Many people can't afford to live on CPP alone, so save your money. DTC: Do you think that the internet has effected the economy in a positive or negative way? Sherry Cooper: Positive, of course. The Net has accounted for more than one-third of all the growth in the U. S. and Canada since 1995.
It has created jobs, boosted productivity and markedly reduced the costs of production and communication. What's more, we are in the early days of this revolution. The mobile Net is emerging as the Internet goes wireless. Charles DeLand: Should the Bank of Canada worry about headline inflation at all (higher lately because of high oil and gas prices) or continue to focus on the core number? Sherry Cooper: No, the core number is key and it is extremely low -- only 1. 3 %. Shelley Knox: Why are the markets punishing stocks that meet or slightly exceed expectations?
Am I to believe that Cisco is not a worthy stock? Sherry Cooper: The volatility in the stock market is without precedent. You are quite right, the market seems to be looking for bad news, exaggerating it when they find it. That is what we saw with Cisco this week. My view is that tech stocks were priced for perfection and now the markets are reassessing the risk. This is a big point, because the multiples on these stocks (the P/E ratios) were so high, that the slightest disappointment can have a big effect.
For so long, they could do no wrong. Now they can do no right. This too will change, but or the moment, expect huge volatility. The correction in techs is not over yet. In the first year of the new millennium, Canada has blasted ahead like an economic ballistic missile, targeted on a new era of stellar good times. Economic growth for the 12 months that ended in August hit 4. 4 % (it's currently expected to reach 4. 7 % for the year 2000); the national unemployment rate had fallen to 6. 6 % by June; and inflation, the toxin most likely to kill off long-term growth, was a manageable 2. 7 % for the 12 months that ended in September.
Next year promises more of the same: growth of 3. 5 % (higher than projected for the powerhouse U. S. ), unemployment that dips to 6. 3 %, and inflation only marginally higher than now. Finally, after years of fiscal pain, there seems to be money to burn -- at least during election time. The slender Liberal Party platform Red Book unveiled by Prime Minister Jean Chretien last week may have been short on new ideas, but it significantly untied the purse strings. Along with calling for $ 4. 3 billion in additional federal spending over the next four years, it affirmed the government's intention, if re-elected, to cut capital-gains and income taxes to the tune of $ 65 billion over the next five years while continuing to retire the national debt. If a Canadian Alliance government emerged (last week that looked unlikely, with the party's support at 29 %, vs.
the Liberals' 42 %), taxpayers could expect even more largesse. Meanwhile, budget surpluses seem to stretch as far as a Treasury Board official's eye can see. As if any more proof were needed that Canada has become one of the world's most export-oriented nations, its sales of goods and services abroad were also on a spectacular trajectory. Exports for the first eight months of the year grew 15. 7 %, compared with the same period in 1999, and exports as of June made up 45. 5 % of gross domestic product, vs. 42. 3 % a year earlier. In the process, trade ties with the U.
S. grew even stronger: exports to the U. S. through August of this year were 15. 8 % higher than the same period last year, making up 86 % of Canada's total. Could anything get any better than this? More important, could it get worse?
What steps should the country be taking to guarantee its prosperity and place in the budding new century? As the political parties sketched in their opposing plans and policies, TIME last week convened a special panel of economic experts from Europe, Asia, Canada and the U. S. to consider Canada's domestic and international prospects in the months and years ahead. Our Forum on Canada's Future was convened in TIME's Toronto offices; for 3 1 / 2 hours the five members of the panel debated short-term issues raised in the campaign battle and a long-term agenda for the fiercely competitive era that they are convinced is inevitable. On one point the panel was unanimous: there is no room for complacency in the tough global environment that looms after the political skirmishing is over.
Among the highlights of the deliberations: Canada has made a "fantastic improvement, " in the words of Kenneth Court, vice chairman for Asia at the Goldman Sachs investment firm, in the economic fundamentals that put it gravely at risk in the early 1990 s. And the latest promises to cut income and capital-gains taxes are a further step in an agenda of reform that can improve the country's international competitiveness. In that sense, Canada may have reached some kind of watershed. But at the same time, the threat of losing fiscal discipline is rising fast; that discipline needs to be maintained, and the tax incentives for a risk-taking, entrepreneurial culture need to be further strengthened.
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