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Signs of Spring, and At Last a Recovery?

April 1, 1983 -

Although the signals are still somewhat confusing, there are indications of a slight upturn in our economy. One of the most important is the lowering of the inflation rate. By year end it was down to 9.3% annually, while in February 1983 it was reduced to 7.4%. The trend rate of consumer inflation has been running at an annual rate of 4.5% for several months, according to Arthur Donner of Research Securites of Canada Ltd. He predicts that the price index for the entire year will rise by 6.8% compared with 10.8% in 1982.

Interest rates have come down considerably, and at the time of this writing stand at 11.5% prime rate. Yet experts point out that the real interest rate (the rate after inflation is discounted) is still very high, at 7% in December of 1982. At this relatively high level, interest rates will continue to dampen the economic recovery in Canada.

What is needed first of all is an upswing in demand, of which the three major sources are private households, business, and governments. Despite the high level of savings, consumers are still reluctant to buy; as to business, there is no major upturn in business and investment spending, but inventories are extremely lean and this is expected to lead to some increased activity (Statistics Canada reported that industrial production jumped 5% in January); as to government spending, policy makers are torn between the need for stimulation by more deficit spending and misgivings about the effect of a federal budget deficit in excess of 30 billion dollars. (It is expected that Finance Minister Marc Lalonde's soon-to-be-released budget will contain a modest amount of extra spending for job creation.)