Strong consumer spending propelled by 2002’s highest employment growth in 15 years will drive the Canadian economy this year, according to the Conference Board of Canada’s latest outlook.

Anticipated new spending in Ottawa’s February budget will help boost growth to 3.2 per cent in 2003, said Paul Darby, director of economic forecasting.

“New spending in the budget will maintain job growth in the latter half of 2003, which will keep shoppers in the stores in spite of rising interest rates,” he said.

Before any new money is spent, the Conference Board forecasts a federal surplus of $8.7 billion for 2002-03 and $11.2 billion for 2003-04, allowing the federal government to spend in a number of areas.

The board expects the February budget to include $5 billion in additional spending: $3.5 billion for health care, $1 billion to begin implementation of the Kyoto Protocol and $500 million for defence.

The board forecasts that the threat of inflation will cause the Bank of Canada to raise the bank rate 2.25 percentage points between April 2003 and April 2004 to keep inflation under control at 2.5 per cent.

The Canadian economy is expected to post growth in 2003 about three-quarters of a per cent above that of the United States. The board says many traditional Canadian export sectors will reflect the weakness south of the border, but Canada is not plagued by the same confidence problem that has beset the U.S. economy.

The board says the most significant threat to Canada’s performance remains a possible slowdown in the U.S. economy due to its lack of job creation in 2002.

Another risk is the prospect of war with Iraq – a short war would have only a limited impact, but the consequences of a longer war are more difficult to predict, the board said.

The Conference Board of Canada is an independent, not-for-profit applied research organization in Canada, with members from a broad range of public and private Canadian organizations.

Meanwhile, an Export Development Canada (EDC) survey released last week shows trade confidence slipped among Canadian exporters during the last six months.

The EDC’s latest Trade Confidence Index (TCI), which measures responses from a random sample of Canadian companies, shows a score of 76.1 out of a possible 100 basis points, a decrease of 4.2 points from the 80.3 registered last spring.

In 2002, the TCI score – a composite based on five questions asked twice a year – averaged 78.2 points over the year, nine points higher than the 69.2 points registered in 2001.

“Exporters are still much more confident than they were post 9-11, but continuing economic turbulence is making them cautious,” said EDC vice-president and chief economist Stephen Poloz. “The confidence reading is consistent with what we have been saying, which is that 2003 is very much a transition year.”

Almost two-thirds (60 per cent) of respondents expect both foreign and domestic sales to increase in the next six months. More than one-third (37 per cent) of the respondent companies anticipate international business opportunities will increase in the next six months.

The lowest TCI scores were found in the forestry (72.9) and consumer goods (75.2) sectors. Business confidence declined in all regions, with Quebec experiencing the sharpest drop (5.4) primarily due to a deteriorating outlook for the machinery and equipment, and aerospace sectors.

Lower confidence levels have not stemmed the appetite for more workers. Forty-three per cent of firms surveyed plan to add staff in the next six months, and seven per cent expect to cut jobs.

However, Poloz cautioned the message may be a little less positive than the numbers suggest.

“What we are seeing is a repeat of the early 1990s, when Canadian companies hired mostly part-time employees during a period of slow recovery. This is a symptom of corporate restructuring as companies face continuing uncertainty, tight profit margins and are looking to increase competitiveness by cutting costs and boosting productivity,” he said.

Opinion Search Inc. conducted the telephone survey in November. The TCI was calculated on 675 responses out of 1,004 surveyed (those who responded to all five elements of the TCI).

The survey results are considered accurate to plus or minus 3 per cent, 19 times out of 20.

Web watch: www.edc.ca/docs/ereports/tradeconfidence/index_e.htm