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OECD
ECONOMIC SURVEYS
CANADA
JUNE 1975
BASIC STATISTICS OF CANADA
THE LAND
Area (thousand sq. km.)
Agricultural area (% of the total area)
9 976
7.6
Population of major cities including
their metropolitan areas
(1971 census):
Montreal
2 743 208
Toronto
2 628 043
THE PEOPLE
Population (1.1.1975)
Number of inhabitants per sq. km.
Population, annual net natural
increase (average 1970-74)
Net rate of annual increase per
22 659 000
2
Civilian labour force (Dec. 1974)
Employment in agriculture
9 715 000
(Dec. 1974)
192 600
1 000 inhabitants
(average 1970-74)
8.9
409000
Immigration (annual average
1970-74)
Average annual increase in civilian
labour force ( 1 970-74, %)
158 800
3.1
PRODUCTION
GNP in 1974 (millions of Canadian
dollars)
139 493
GNP per head (Canadian dollars)
Gross fixed investment (private and
public) per head (Canadian dollars)
Gross fixed investment (private and
public) as % of GNP
6 160
Origin of Gross Domestic Product
(1973% of total):
Agriculture forestry and fishing
Mining and quarrying
Manufacturing
Construction
23.1
4,6
3.7
20.1
5.5
Public administration
6.5
Other
59.6
THE GOVERNMENT
Government current expenditure on
goods and services (average 1970-74,
Composition of Parliament
(Number of seats):
% of GNP)
19.5
Government gross fixed capital formation
(average 1970-74, % or GNP)
House
or
3.8
Senate
Commons
Federal Government current revenue
(average 1970-74, % of GNP)
Federal direct and guaranteed debt %
of current expenditure
(average 1970-74, %)
19.0
Liberals
Conservatives
155
74
72
17
Ralliement Creditisle
147.8
Social Credit
14
New Democratic
22
Independents
1
Vacant
1
3
7
Last election: July 1974
FOREIGN TRADE
Exports:
Exports of goods and services as % of
GNP (average 1970-74)
25.3
Main exports, 1974
(% of commodity exports):
Wheat
6.4
Newsprint
5.4
Lumber
4.0
Wood pulp
Non-ferrous metals and alloys
5.8
Ores and concentrates
1.6
Motor vehicles and parts
Other manufactured goods
5.6
Imports:
Imports of goods and services as % of
GNP (average 1970-74)
Main imports, 1974
(% of commodity imports):
Industrial materials
Motor vehicles and parts
Producers' equipment
Consumer goods
Main suppliers, 1974
(% or commodity imports):
25.8
21.5
23.3
20.0
17.8
17.6
United States
15.9
United Kingdom
3.6
European Economic Community
5.7
Main customers, 1974
67.3
(% of commodity exports):
United States
66.3
United Kingdom
5.9
European Economic Community
6.4
THE CURRENCY
Monetary unit: Canadian dollar
Note
The Canadian dollar has been floating since
31st May 1970. Currency units per US dollar.
May 1975 (average of daily figures):
1.0283
An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
CANADA
Archives-
References
- DOCUMENT PRÊTÉ RETOUR BUREAU 610
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development (OECD) was set up under a Convention
signed in Paris on 14th December, 1960, which provides
that the OECD shall promote policies designed :
to
achieve
the
highest
sustainable
economic
growth and employment and a rising standard of
living
in Member countries,
while
maintaining
financial stability, and thus to contribute to the
development of the world economy ;
to contribute to sound economic expansion in
Member as well as non-member countries in the
process of economic development;
to contribute to the expansion of world trade on
a multilateral, non-discriminatory basis in accord¬
ance with international obligations.
The
Members
of
OECD
are
Australia,
Austria,
Belgium, Canada, Denmark, Finland, France, the Federal
Republic
lapan,
of
Germany,
Luxembourg,
Greece,
the
Iceland,
Netherlands,
Ireland,
New
Italy,
Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States.
The Socialist Federal Republic of Yugoslavia is asso¬
ciated in certain work of the OECD, particularly that of
the. Economic and Development Review Committee.
*
**
The annual review
of Canada
by the OECD Economic and Development Review
Committee took place on 4th June, 1975.
© Organisation for Economic Co-operation and Development, 1975.
Queries
concerning
permissions
or
translation
rights
should be
addressed to:
Director of Information, OECD
2. rue André-Pascal. 75775 PARIS CEDEX 16. France.
CONTENTS
Introduction
I
5
Recent Developments
5
Demand and output
II
III
5
The labour market
11
Price and wage developments
The foreign sector
14
19
Economic policy
24
Fiscal policy
Monetary policy
Prices and incomes policy
Energy policy
25
28
32
33
Prospects and conclusions
33
Prospects
33
Conclusions
36
Annexes
A
Cyclical influences on the balance of trade
39
B
The Canadian income tax indexation system
41
C
Chronology of main economic events
43
TABLES
Text:
1
2
3
Changes in demand and output 1971-1974
Growth of disposable income and earnings
Composition of business non-residential capital outlays
7
8
9
among sectors
4
Effects of participation rates and demographic changes on the
12
growth of the labour force
5
6
7
8
9
10
11
12
The structure of prices
Wages, earnings and labour costs
Changes in the current balance in value and volume
Import volumes
Capital account
Growth rate comparisons
The federal budget, fiscal years 1970 to 1976
Federal and provincial government revenues and expenditures
15
17
20
22
23
25
26
27
OECD Economic Surveys
13
The growth of taxation revenue
27
14
Reductions in income tax revenue
28
15
16
Major sources of funds raised by private non-financial business
Demand and output forecasts
31
35
Statistical annex :
A
Gross national product and expenditure
48-49
B
Industrial production, employment and other business indicators
50-51
C
Prices, wages and finance
52-53
D
Balance of payments
54
DIAGRAMS
Text:
1
2
3
4
The rate of capacity utilisation in manufacturing
The housing and mortgage markets
Deviation from the trend growth of total employment
Wholesale prices, industry selling prices and consumer prices
6
10
13
17
5
Balance of trade indicators
21
6
7
Exports and market growth
Effective exchange rates
22
23
8
Growth of monetary aggregates
30
9
Interest rate differentials and exchange rate
32
Annex A
1
Estimated cyclical components of the trade balance
40
INTRODUCTION
The Canadian economy's latest period of economic expansion, which
began in the first quarter of 1971, came to an end in the first quarter of 1974.
Since then industrial production and real domestic product have declined almost
continuously. The principal weakness during 1974 was in the foreign sector,
where a fall in real exports resulting from stagnant or declining world demand
caused a deterioration in the foreign balance equivalent to about 3 per cent of
real GNP. By the end of 1974 domestic demand had also weakened considera¬
bly, but not as much as the average for the OECD area or for the United States.
As a result, the foreign balance has continued to deteriorate this year.
Price
rises accelerated during 1973 and 1974, but the overall performance was better
than the OECD average. By the beginning of 1975, however, wage pressures
threatened to prevent or at least delay any noticeable improvement in the overall
price performance. Unemployment, which bottomed at a disappointingly high
rate of 5.3 per cent in the second quarter of 1974, reacted to the slowdown sharp¬
ly at the end of 1974, and by March 1975 had reached 7.2 per cent.
The principal aim of demand-management policy during the second half
of 1973 and first half of 1974 was to contain the rapid increase in prices by reduc¬
ing the pressure of demand, principally through the use of a tight monetary pol¬
icy.
By the second half of 1974, with declining real output and a deteriorating
situation in the rest of the OECD area, the policy priority changed and an expan¬
sionary budget, aimed at arresting the emerging downturn, was brought down in
November. The major fiscal policy moves took the form of income tax reduc¬
tions, supplementing the existing indexation system. Monetary policy moved rap¬
idly to an expansionary stance late in the third quarter.
The prospects for 1975
are for a small decline in real output and some moderation in the rate of inflation
over the next twelve months.
A modest pick-up in real output growth can be ex¬
pected in the second half of the present year and the first half of 1976, but a
return to capacity growth rates is unlikely until there is a substantial upturn in the
world economy. The recovery will probably not be sufficient to prevent the rate
of unemployment from increasing into the first half of 1976. The current balance
of payments deficit rose strongly in the first half of 1975, and may remain at a
high level over the next twelve months.
Part I of this Survey deals with recent developments, notably the down¬
turn in activity, developments in the labour market, price and wage trends, and
the deterioration in the external position.
Part II discusses the fiscal and mone¬
tary policy response to these problems and also deals briefly with prices and in¬
comes policy and energy policy. The Survey concludes with a brief discussion
of the Secretariat's forecasts through to the middle of 1976 and an evaluation of
policy options in the light of these prospects.
I
RECENT DEVELOPMENTS
Demand and output
The period from the beginning of 1971 to the spring of 1974 was one
of major expansion, similar in strength to the expansion of 1961 to 1966, but
OECD Economic Surveys
shorter in duration. A temporary pause occurred in the late summer of 1973,
due primarily to supply problems caused by strikes and transportation difficul¬
ties1, but this was followed by two further quarters of strong growth.
Effectively
zero growth of output in the second and third quarters of 1974, although again
influenced by industrial disputes in the second quarter, followed by a 5 per cent2
decline in the fourth quarter, marked the end of the expansionary phase. During the
expansion, the rate of capacity utilisation increased reasonably steadily, except for
small dips in the second half of 1972 and 1973, from its trough in 1970 (see
Diagram 1). A peak was reached in the first quarter of 1974 roughly equal in
intensity with the peak of 1965/663, but since then, the rate of capacity utilisa¬
tion has declined sharply.
Diagram 1
Rate of Capacity Utilisation in Manufacturing
96
-I
94
4 9!
92
92
90
90
96
8E
80
U
-i
84
82
82
80
\ SO
I
i n
-J
I9ÔI
Note:
1962
1S63
' 1954
1955
1S6S
1967
196S
1969
1970
1971
1972
1973
76
1974
For method see Bank of Canada Review, September 1974.
Source: Statistics Canada.
The two components contributing most to the slowdown were the foreign
balance and residential construction. The weakening of exports began early in
1973 and by the fourth quarter of 1974, the level of export volumes was lower
than two years earlier.
The decline in residential construction has been more re¬
cent. Housing starts fell at the beginning of 1974, although the total volume of
residential investment kept up until later in the year. Throughout 1973 and
1 974, private consumption, government expenditure and non-residential fixed cap1
It is important to take account of the supply disruptions caused by industrial disputes
when interpreting recent economic time series, especially investment and exports. In the third
quarter of 1973, a rotating strike in the railways tied up the shipment of goods from one end of
Canada to the other. The economic effects were marked but the number of people involved in the
dispute was not especially large, so it does not show up strongly in statistics of man-days lost. In
the second quarter of 1974, widespread industrial disputes, mainly in construction, had similar
effects, but on this occasion the disturbance can be detected from figures of total man-days lost.
2 Seasonally adjusted annual rate.
3 The index of capacity utilisation compiled by the Bank of Canada, which is based on capital
stock to output ratios, shows this relationship (see Bank of Canada Review, September 1974).
Another series compiled by the Department of Industry, Trade and Commerce, using the "trend
through peaks" method, shows another peak of equal intensity in the first quarter of 1969. For a
detailed analysis see the Department of Finance, Annual Review, April 1975, pp. 27-38.
Table 1
Changes in demand and output 1971-1974
At annual rates 1961 $, quarterly figures seasonally-adjusted
1974
1973
1971
1972
1973
1974
Q3
Personal expenditure
Government current expenditure
Gross fixed capital formation
Government
Business
Non-residential
Residential
Q4
Qi
Q2
Q3
Q4
-7.5
5.3
6.9
8.0
4.3
4.9
7.6
7.3
3.0
2.2
4.3
4.0
4.1
8.9
11.6
11.0
13.0
11.0
3.1
2.0
7.9
5.3
10.4
7.4
13.5
10.7
18.1
-12.8
6.5
-0.4
12.8
1.1
4.4
9.6
11.3
-8.5
12.5
7.4
30.6
9.4
6.8
6.3
11.7
6.9
14.0
14.7
19.2
-16.2
2.2
-2.3
3.3
4.7
11.3
9.1
20.3
14.0
21.5
-20.7
20.1
10.9
18.6
10.9
12.8
0.8
-1.2
16.6
13.3
-3.0
-35.5
-35.5
-4.5
Final domestic demand
5.7
6.1
7.9
5.7
7.8
8.8
10.5
0.4
3.3
Value of physical change in inventories1
0.4
0.2
0.5
1.2
-0.3
5.0
0.2
2.8
-1.1
0.4
Total domestic demand
6.1
6.3
8.3
6.8
7.4
14.0
10.6
3.1
2.1
-4.0
Exports of goods and services
Imports of goods and services
4.9
7.1
8.3
-1.1
-11.1
8.5
2.6
-10.5
14.0
-13.3
8.0
11.9
12.4
9.4
7.6
28.7
8.5
-2.4
22.5
-1.2
-0.7
-1.2
-1.2
-3.1
-5.3
-5.5
-1.8
-2.2
-2.9
-3.4
Residual error of estimate1
0.3
0.8
-0.4
-O.l
0.8
2.2
-1.7
-1.6
0.7
2.5
Gross national product2
5.6
5.8
6.8
3.7
2.8
10.9
7.1
-0.5
0.1
-5.0
Foreign balance1
1
Changes as per cent of GNP in previous period.
2
Total domestic demand plus contributions from the foreign balance and residual error of estimate add approximately to gross national product.
Source; Statistics Canada, National Income and Expenditure.
OECD Economic Surveys
ital formation have supported the level of activity - the later, in paricular, being
the principle source of strength in 1974.
Despite the fact that the growth of average earnings
or compensation per
employee only slightly exceeded price increases, real private consumption showed
an increase of 8 per cent in 1973, and 4.3 per cent in 1974.
Table 2 shows the
growth of the components of real personal disposable income over the last two
years.
Employment growth, averaging nearly 5 per cent per annum, was the
strongest contributor to growth of total compensation of employees.
Farm in¬
come rose rapidly in 1973, and interest, rent and dividends and transfers showed
strong advances in both years. Personal income increased by 14 and 17 per cent
respectively in 1973 and 1974. As usual, disposable income grew less rapidly in
1974 despite the tax cuts and income tax indexation system.
In 1973, the strong
growth of personal disposable income, together with a small fall in the saving
ratio, made room for the rapid consumption growth. Early in 1974 private con¬
sumption continued to grow strongly, but it slowed down and fell, reflecting both
the unattractiveness of automobile and consumer durable purchases* and the de¬
cline in real disposable income. For the year as a whole the saving ratio showed
an increase of over half a percentage point.
Business fixed investment, after six years of growth at below the trend rate
of growth of GNP, began its present resurgence at the start of 1973. Spurred by
strong demand in 1971 and 1972, imminent capacity shortages, and by policies
such as the accelerated capital cost allowances brought down in the May 1972
Table 2
Growth of disposable Income and earnings
Seasonally adjusted annual rates
1974
1973
1974
Qi
Q2
03
04
6.8
11.9
15.1
11.8
15.1
5.2
4.3
5.7
3.1
5.4
2.4
Compensation of employees1
12.4
16.7
21.7
15.3
21.3
12.4
Other income
Compensation per employee
Employment
9.8
21.5
15.3
1.3
32.8
12.3
3.7
Farm income
86.1
5.6
-45.9
100.0
-18.3
-24.5
Rent, interest and dividends
19.4
24.3
17.9
32.6
23.2
25.8
7.0
9.6
11.7
11.4
15.4
1.7
13.0
21.9
49.9
8.2
15.1
13.8
11.7
Non-farm unincorporated enterprises
Current transfers from government
Personal income3
14.0
17.0
20.6
17.4
18.8
Income taxes
16.6
21.2
21.8
-4.0
81.2
8.7
9.7
21.5
80.1
8.2
9.3
46.5
13.8
16.0
17.4
22.2
10.6
10.0
6.1
10.5
10.1
12.1
13.5
15.2
7.3
5.0
6.6
9.0
-2.6
-4.3
0.6
1.3
4.5
-0.3
1.4
-4.1
Other taxes3
Personal disposable income4
Consumer prices8
Real personal disposable income6
Real compensation per employee4
1
2
Wages, salarie! and supplementary labour income plus military pay and allowances.
Personal income is compensation of employees plus other income and current transfers.
3
Succession duties and estate taxes, employer and employee contributions to social insurance and government
pension funds and other.
4
Personal income minus income taxes and other taxes.
5
Implicit deflator for consumption expenditure.
6
Deflated by the implicit price deflator for consumption expenditure.
Source: Statistics Canada, National Income and Expenditure.
4
In the last two quarters of 1 974, consumption of durables in real terms fell by 8 per cent and
35 per cent at an annual rate.
Much of this can be explained by the decline in housing starts which
fell by about 57 per cent at an annual rate in the same two quarters, and by the unwillingness of
consumers to take on major new commitments in face of the uncertainties about prices and em¬
ployment. Sales of new automobiles fell by over 70 per cent at an annual rate in the fourth quarter
of 1974, but have picked up in the first two months of 1975.
Canada
federal budget and the reduced rate of corporation tax introduced in the February
1973 budget, private fixed investment showed a volume increase of 11.7 per cent
in 1973 and 6.9 per cent in 1974.
Within this general pattern, the growth of
non-residential investment remained strong at 9.1 per cent in 1974, despite the
sharp setback in the second quarter as a result of strike activity, while residential
investment weakened in the second quarter of 1974 and showed a steep decline
for the remainder of the year.
Table 3
Composition of business non-residential capital outlays among sectors
Millions of dollars
Industry or sector
Manufacturing
Resource
(Forestry and mining)
Utilities
Other investment
Total
Energy-related2
Non energy-related
1972
1973
1974
1975J
2 948
3 668
4962
6067
(-1.5)
(24.4)
(35.3)
(22.3)
1737
1860
2272
2 560
(-6.4)
(7.1)
(22.2)
(12.7)
4 229
5157
6116
7 663
(6.0)
(21-9)
(18.6)
(25.3)
5 436
6 584
6 941
8 836
(18.0)
(21.1)
(20.6)
(11.3)
14 350
17 269
21291
25126
(6.7)
(20.3)
(23.3)
(18.0)
3 178
3 938
5118
6 917
(3.8)
(23.9)
(30.0)
(35.2)
11172
13 331
16173
18 209
(7.6)
(19.3)
(21.3)
(12.6)
1
January 1975 survey of investment intentions.
2
Includes petroleum and gas, petroleum and coal products, industrial chemicals, electrical power and gas distri¬
bution.
Source: Statistics Canada, Private and Public Investment in Canada, Outlook 1973, 1974 and 1975.
The investment boom has been broadly based, with all sectors participating
during the upswing (see Table 3). A major reason for the continuation of the
investment boom well beyond the downturn in general economic activity has been
the influence of energy-related investment (which includes parts of manufac¬
turing, resource and utilities). Much of this investment is very long-range in na¬
ture and largely unaffected by the cycical climate. The continuation of the boom
in energy-related investment could, however, be affected by such factors as re¬
source taxation and energy pricing policies. Although this component of invest¬
ment appears to be still growing strongly, it may prove "brittle" in nature as a
relatively small number of large projects under construction or at the planning
stage make up most of the total and construction costs are rising rapidly.
Following the tightening of monetary policy during 1973, the first expendi¬
ture category to react was residential construction. Mortgage approvals seem to
have started to decline from about September 1973 (see Diagram 2). The mort¬
gage rate, after plateauing at around 10 per cent during the fourth quarter of 1973
and the first quarter of 1974, reached over 12 per cent in September 1974.
Stricter non-rate lending terms, particularly higher down-payment requirements,
were instituted by major mortgage lenders in the spring of 1974. The combina¬
tion of higher mortgage rates, stricter terms and uncertainties about future con¬
struction costs led to a fall in housing starts from the beginning of 1974. The
10
OECD Economic Surveys
fall was most marked in the construction of rented accommodation, where the
long lags associated with rent increases reduced profitability in face of the rising
construction and mortgage costs.
The possible extension of rent controls in some
provinces may also have been a factor. The fall has been extremely pronounced,
with starts in the fourth quarter of 1974 of less than 170,000 units at an annual
rate, compared with an average of 250,000 per year from 1971 to 1973.
The
fall continued into the first quarter of 1975 and in March they had sunk to 144,000
units at an annual rate. There was a recovery to 185,000 units in April.
Diagram 2
The Housing and Mortgage Markets
Conventional
Mortgage
Lending R2te
9
9
220
~220
200
200
ISO -
150
Mortgage Approval;
By Private Lending
160
160
Institutions
(000's) at annual rates. a.
140
-
140
120
120
100
100
80
-
80
60
60
40 p
40
20
20
Housing Starts
33D'
_300
fOOO's) at annual rates, a.
250
230
250
260
240
240
220
.220
200
-
180
160
-
-
-
140
-
120
-
100 Lj
u
jfmamjjas-ondjfmamjjasondjfmamjjasondjfmai
19Ï2
Source: Bank of Canada Review.
1973
1974
1975
200
ISO
160
140
120
100
Canada
11
Two sources of strength during 1973 and 1974 were government expenditure
and inventory accumulation.
Government current and capital spending grew at
an average annual rate of 10 per cent in real terms in the second half of 1973 and
first half of 1974; the advance slowed to a little over 5 per cent in the se¬
cond half.
Inventory accumulation which was reasonably strong during 1973, has
made a considerable contribution to demand during 1974, when it increased by
the equivalent of \\ per cent of real GNP.
Part of this rapid accumulation was
necessary to overcome the very low stock-output ratio that prevailed in early
1974, but judged by the evidence of manufacturing inventories, much of the sub¬
sequent accumulation seems to have been involuntary.
At the same time, in¬
dustrial production has steadily decreased since March last year, and in February
this year was about djt per cent below the March 1974 peak.
The labour market
Spurred by the rapid expansion of real output, employment grew at rates
of 5.2 per cent in 1973 and 4.3 per cent in 1974 respectively. During the same
two years, however, the labour force grew at 4.4 per cent and 4.1 per cent, leading
to a disappointingly modest drop in the unemployment rate, from its peak of 6.6
per cent in August 1972 to its trough of 4.9 per cent in June 1974.
At the peak
level of expansion, a particularly important feature was that the rate of unem¬
ployment remained higher than in earlier periods of similar levels of capacity utili¬
sation. An unemployment rate of 3.4 per cent was experienced for several
months in 1966 and a trough of 4.4 per cent was reached in March 1969. The
failure of the most sustained burst of employment growth in the post-war period
to bring about a larger fall in unemployment is dealt with in more detail below.
The improvement in labour market conditions came to an end during 1974.
Seasonally-adjusted employment in manufacturing peaked in September, while
total employment levelled off in December and has fallen since.
The stagnation
of real output growth from the second quarter of 1974, coupled with the continued
growth of employment, resulted in a substantial fall in productivity.
The rise in
the unemployment rate, which started in July, became pronounced in the last
quarter of the year5 at which time the level of vacancies showed its first sharp fall
since the inception of the series in 1970. The unemployment rate has since risen
to 7.2 per cent in March this year.
The principal labour market concern in Canada is the failure of the unem¬
ployment rate to respond to the strong output and employment growth in the re¬
cent expansion, which is particularly disturbing in view of the weak output picture
in the last three quarters of 1974 and the prospects for 1975.
The explanation
for this development does not lie on the demand side as the strong growth of em¬
ployment and moderate productivity performance indicates, but in the rapid ex¬
pansion cf the secondary labour force0. This, in turn, may be attributed to demo¬
graphic trends and the trend and cyclical behaviour of participation rates.
As
can be seen from column 2 of Table 4, the changing composition of the Canadian
labour force, particularly the group of males and females under 25, in the period
1962 to 1972, provided a strong stimulus to growth of the labour force, but it has
become less important since then. As regards participation rates, the large chan¬
ges in the additions to the labour force resulting from the increase in participation
5
For a comparison of the timing of Canada's labour market cycle with other OECD countries,
see OECD Economic Outlook, December 1974, p. 29.
6 The secondary labour force consists of all females, and males under 25. The fact that males
aged 25 to 64 have not contributed much to the deterioration in aggregate unemployment per¬
formance is shown by their minimum unemployment rates in the last three expansions. In 1966
the minimum was 2.8 per cent, in 1969 it was 3.8 per cent and in July 1974 it was 3.5 per cent.
OECD Economic Surveys
12
rates since 1962 and 1968 for females particularly, can be seen from Table 4,
column l7.
In addition, several factors suggest that the cyclical sensitivity of the
Canadian labour force has recently increased8.
During the most recent period of
strong expansion in employment, from the second quarter of 1972 to the last
quarter of 1974, participation rates increased by 1.4 per cent each year, compared
with a rate of 0.7 per cent in the previous rapid upswing in employment ending
in the third quarter of 1967".
At the same time, the pattern of labour force par-
Table 4
Effects of participation rates and demographic changes on the growth of the labour force
Additions to the labour force in thousands of persons per year
Population effect"
Category of labour force
and period
Participation
rate effect1
Group
Total
population
population
effect'
effect*
2
1
3
effect
4
Males 14 to 24
1956 to 1962
-19.4
10.4
18.7
9.7
1962 to 1968
-1.0
26.7
24.0
49.7
1968 to 1972
9.3
13.9
30.7
53.9
1972 to 1974
50.0
4.7
35.5
90.2
Females 14 to 24
r
1956 to 1962
-2.9
5.9
11.4
14.4
1962 to 1968
11.4
15.3
16.1
42.8
1968 to 1972
9.7
5.2
22.2
37.1
1972 to 1974
43.3
-0.8
25.5
68.0
Females 25 to 64
1956 to 1962
40.8
-0.8
18.9
58.9
1962 to 1968
45.8
-10.8
32.7
68.5
1968 to 1972
43.3
-0.6
42.0
84.7
1972 to 1974
64.7
2.3
51.0
118.0
1 The participation rates (PR) effect is the increase in the labour force per year that would have resulted from the
change in the participation rate if the population of the group had remained the same.
PR effect
2
(PR 1 1
PRit_ j) P,, where the subscript i refers to a group and the bar refers to the mean.
The population (P) effect i» the increase in the labour force per year that would have occurred as a result of the
population growth of the «roup in question if its participation rate had remained the same. P effect = (Plt
Plt _ j) PRj.
3 The population effect obtained in (b) was broken down into two components; the growth in the group labour
force (LF) that would have occurred had the group grown at the total population growth rate (total population effect);
(LF|, x growth rate of total population), and the difference between this figure and the population effect calculated in (b)
which was attributed to the fact the group growth rate differed from the growth rate of total population, (group popula¬
tion effect).
Source: Statistics Canada, The Labour Force.
7 See Arthur W. Donner and Fred Lazar "An Econometric Study of Segmented Labour
Markets and the Structure of Unemployment: The Canadian Experience." International Economic
Review, June 1973. Based on a study from 1956 to 1970, Donner and Lazar suggest that a growth
rate of real output of up to 8.2 per cent per annum may be required to prevent the unemployment
rate of women 25 - 34 from rising.
8 For studies of, the cyclical sensitivity of the Canadian labour force see both Pierre-Paul
Proulx "La variabilité Cyclique de taux de participation à la main-d' au Canada", and Law¬
rence M. Officer and Peter R. Anderson "Labour Force Participation in Canada" (both articles in
Canadian Journal of Economies, May 1969). They found at least as much evidence among different
age and sex groups, for participation rates to contract with the cycle as to expand. L. G. McCabe,
"Short-term Forecasting of Labour Force Participation by Major Demographic Groups", Canada
Manpower Review, Vol. 6 No. 2, 1973, finds clear evidence of increases in participation rates in
periods of cyclical expansion:
9 The corresponding figures for the two large contractions 1960(1) to 1962(1) and 1969(1)
to 1971(2) were -0.1 per cent per annum and -0.2 per cent per annum.
13
Canada
Diagram 3
Deviation from Trend Growth of Total Employment
Seasonally adjusted
-J
-2
I
1950
1S61
1952
1963
1964
1955
1955
1967
1963
1969
1970
197!
1972
1973
1974 1975
Source: Statistics Canada, The Labour Force.
ticipation of persons under 25 years has undergone an important change recently10.
The observed increase in the labour force response to the recent expansion
seems to have largely been due to the changes in the trend in participation rates
and their cyclical behaviour. At the same time the greatly improved coverage
and easier eligibility provided by the Unemployment Insurance Act 197111 may
account for some of the increased growth in the labour force, particularly the se¬
condary labour force, over the last two years. Labour force changes of the
magnitude of those observed between 1972 and 1974 could not normally be
caused so quickly by such factors as the evolution of social attitudes, changing
income levels or workforce skills.
Price and wage developments
As elsewhere, the price performance deteriorated markedly in 1974 (see
Table 5), but was nevertheless slightly better than the OECD average12.
The
substantial increases in recent years can be viewed partly as a continuation of the
medium-term trend apparent since 196713, but more particularly as a result of devel10 From recent behaviour of the participation rate among young persons, it is possible to
detect an important change roughly coinciding with the recent expansion. Over the last twenty
years, the pattern of labour force participation of persons less than 25 years has displayed a distinct
U-shape. Starting from a level of 54.5 per cent in 1953, the rate declined continuously to 47.6 per
cent in 1964, then rose to 49.8 per cent in 1967. After staying around 49.9 per cent for four years
it began to climb sharply in 1971 . By 1974 it had reached 55.9 per cent, showing an extraordinary
increase of six percentage points in four years. While changing attitudes to education may account
for the broad shape of the development, the change from sixteen years of gradual non-cyclical
movement to the sudden rise shown during the recent expansion is new.
11
Which became effective on January 2nd, 1972.
12
OECD "Economic Survey of Canada", December 1973, p. 8 and OECD "Economic Out¬
look", December 1974, p. 101.
13 OECD "Economic Survey of Canada", December 1973, pp. 10 and 11.
14
OECD Economic Surveys
opments in the international market place. Towards the end of 1974 the inflation¬
ary influences from abroad started to weaken, but this coincided with an increase
in the domestic contribution, particularly from labour costs. An additional problem
is the pricing of oil and gas.
Self sufficient in oil and gas, Canada decided not
to move immediately to the world price and this partly accounted for Canada's
lower than average increase in consumer prices in 1974, but the problem will
now have to be faced in 1975 and 1976.
Although it is impossible to separate entirely the domestic and the inter¬
national inflationary influences, Table 5 attempts to summarise, by way of the
structure of implicit price deflators, the timing of some of these influences.
On
the domestic side, a comparison of the final domestic demand deflator and the
consumption deflator shows that the former starts at a higher level (reflecting a
more rapid increase between 1961 and 1971) and continues to grow more rapidly
from 1971 to 1974.
The principle explanation for this is the increase in the con¬
tributions from the Government expenditure deflator and the construction de¬
flator.
The price of machinery and equipment, which had on average grown at
the same rate as consumption from 1961 to 1971 fell behind from 1971 to 1974.
Its negative contribution to the difference between the domestic demand deflator
and consumption deflator became smaller, however, after mid-1973.
Since it
has a high import component (unlike construction and government) the decline
in its negative impact is a result of the acceleration in import prices.
On the international side, the change over the last four years has been quite
striking. From 1961 to 1971 and then through to the fourth quarter of 1972,
the non internationally-traded goods and services deflator grew more rapidly than
either the final domestic demand or gross national expenditure deflators.
This
is shown by the increasingly large negative (i.e. stabilising) contribution of im¬
port and export prices to the final domestic demand and gross national product
deflators respectively. From the first quarter of 1973 onwards, however, foreign
trade prices become destabilising. The negative contribution of import prices
declines substantially, and the contribution of export prices changes quickly from
negative to positive, thus causing a very rapid acceleration of the gross national
product deflator relative to the non-international traded goods and services
deflator14. Thus, in the eight quarters from the fourth quarter of 1972 to the
fourth quarter of 1974, while the non-international traded goods and services
deflator increased at an annual rate of 7.8 per cent, the final domestic demand
deflator grew at 10.5 per cent and the gross national product deflator grew at
11.6 per cent. In the last two quarters of 1974, it is interesting to note the
sharp decline in the stabilising effects of import prices and at the same time the
levelling off of the export price contribution. These two quarters correspond to
a period of deterioration in the terms of trade, where the import deflator rose by
21.1 per cent at an annual rate compared to 11.9 per cent for the export deflator15.
14 This discussion only applies to direct effects and ignores the lagged secondary effects.
For example, increases in import prices lead to increases in consumer prices which, through the
wage bargaining process, lead to increases in wages and thus the deflator for non-internationally
traded goods and services and the GNP deflator.
1 5 Changes in import and export prices work their way into the prices of non-traded goods and
into the general price level in several ways. The influence of import prices, directly measurable in
the input-output sense, may be small compared to the indirect influences.
The switch in demand
away from imported goods to domestically produced goods, especially when the economy is operating
at high levels of capacity utilisation, can have large inflationary consequences.
A reduction in
competition from abroad in import competing industries removes a strong anti-inflationary
constraint.
On the export side the recipients of the increased income generated by the higher
export prices direct this to increasing demand for domestic goods (and imports). A rise in export
price also leads to a corresponding rise in the domestic price of the exported commodity as producers
Continued page J 6 «-
Table 5
The structure of prices
Implicit deflators 1961 = 100, seasonably adjusted
Construction1
Machinery +
Govt.
Domestic
Investment1
Expenditure1
Demand
Gross
Non-inter-
Final
Consumption
Imports
nationally
traded goods
Exports
National
Product
and services'
1
2
3
4
5=1+2+3+4
6
7 = 5-6
8
9=7-8
1971Q1
128.4
1.5
0
6.4
136.2
-4.8
141.0
-5.1
135.9
1971Q2
129.8
1.6
0
6.9
138.4
-5.0
143.4
-5.8
137.6
1971Q3
130.8
1.8
0
6.7
139.3
-4.8
144.1
-5.5
138.6
1971Q4
131.7
1.8
-0.1
7.0
140.5
-5.9
146.4
-6.3
140.1
1972Q1
1972Q2
133.5
2.0
-0.1
7.3
142.7
-5.5
148.2
-6.3
141.9
134.7
2.1
-0.2
7.2
143.8
-6.4
150.2
-6.8
143.4
1972Q3
136.1
2.3
-0.3
7.6
145.8
-7.1
152.9
-6.9
146.0
1972Q4
137.5
2.4
-0.3
8.1
147.6
-7.6
155.2
-7.7
147.5
1973Q1
1973Q2
1973Q3
139.3
2.5
-0.3
8.3
149.6
-6.8
156.4
-6.5
149.9
142.1
2.9
-0.4
8.0
152.6
-6.3
158.9
-5.4
153.5
145.2
2.7
-0.6
8.0
155.3
-5.9
161.2
-2.9
158.3
1973Q4
148.0
2.9
-0.5
8.1
158.4
-5.6
164.0
-2.9
161.1
1974Q1
151.6
3.3
-0.5
8.0
162.5
-3.5
166.0
1.2
167.2
1974Q2
156.0
3.9
-0.4
8.5
168.2
-2.3
170.5
3.0
173.5
1974Q3
1974Q4
161.0
4.1
-0.3
9.4
174.4
-2.9
177.3
2.9
180.2
166.8
4.0
-0.3
9.6
180.1
-0.5
180.6
3.2
183.8
1 The components (2), (3) and (4) show the contributions made by the individual deflators to the difference between the FDD deflator and the consumption deflator. For example, the con¬
struction index for I971Q1 was 142.5, a figure which exceeded the consumption deflator by 14.1
When weighted by the share of construction in FDD, this gives a positive contribution of 1.5 points.
2 The non-internationally traded goods and services deflator is the weighted difference between the FDD deflator and the deflator for imports of goods and services. It also closely approxi¬
mates the weighted difference between the GNP deflator and the deflator for exports of goods and services (the main difference being the omission of the residual error of estimate and the deflator
for inventories from the FDD deflator). The export contribution is the actual difference between the GNP deflator and the deflator for non-internationally traded goods and services. The
import contribution u the actual difference between the FDD deflator and the deflator for non-internationally traded goods and services.
Source: Bank of Canada Review.
16
OECD Economic Surveys
The development of prices at various stages
Diagram 4. Total wholesale prices accelerated
ued to increase strongly until mid- 1974, but
then. When the food component is excluded, the
of production can be seen from
sharply until mid-1973, contin¬
have decelerated sharply since
acceleration becomes more grad¬
ual but the deceleration is sharper. The increase in the aggregate industry
selling price index, which represents a later stage of production and includes a
higher labour content, shows very little sign of decline even during the later
months of 1974, but a clear weakening of the upward trend is discernible in the
Diagram 4
Wholesale Prices, Industry Selling Prices and Consumer Prices
Percentage changes at annual rates
44
«
WHOLESALE PRICE INDEX
40
40
n.s.e. over twelve months earlier
I
36
____ n.t.a. ever six months earlier
.'
I
32
>iS
I
I
1
I
28
IX1
24
/
20
N'*
24
/
20
16
15
/
12
12
8
S
4
%
1972°
1S67
4
0
'
0
32
32
AGGREGATE INDUSTRY SELLING
PRICE
28
28
n.s.a. over twelve months eorlier
24
~
- n.s.a. over six months earlier
/
y-^
2'
"*
\
\.
20
*
J
16
A
20
»
,~-J *"
12
16
/
12
/
£
4
4
1967
1972
0
0
1972
1973
1574
1975
Source: S tatistics Canada, Canadian Statistical Review.
End of note J S
equalise the return from home and abroad. The exception to this is oil, where an export tax was
levied, and wheat where a home price scheme was introduced in October 1973. Finally, there is
the reaction on the wage-bargaining process as wage-earners increase their claims in order to maintain
or improve their position against the price increases. It is reasonable to assume that all these
influences have operated over the past two years, but the exact extent to which they have been
responsible for the increase in prices is difficult to tell in the absence of any knowledge of how
prices would have behaved in the absence of the external stimulus.
Canada
Diagram 4 (cont.)
17
Wholesale Prices, Industry Selling Prices and Consumer Prices
Percentage change annual rates
24
CONSUMER PRICE INDEX (ALL ITEMS)
20
16
n.i.o. over twelve month* marlitr
over six morifJis earlier
12
;;vra;c
1967 lo 1972
0
32
FOOD
COMPONENT OF THE CONSUMER PRICE INDEX
23
n.s.a. over twelve month: earlier
21
n.s.a.
over Six month* earlier
24
!
2C
.
20
i
16
i6
12
S
3.7
1967 lo 1972
CONSUMER PRICES, SEASONALLY AD1USTED
^
Implicit Deflator of Consumption Expenditure
Consumer Price Index Quarterly Change
I
I
Consumer Price Index Monthly Change (right scale)
'
^
24
''
20
16
12
8
4
-,
1S72
1973
1974
0
1975
Source: Statistics Canada, Canadian Statistical Review.
early months of 1975. Consumer prices showed a clear acceleration throughout
1974, but there was some moderation at the beginning of 1975. Using the re¬
cently introduced seasonally adjusted consumer price index the deceleration in the
beginning of 1975 shows up more clearly.
The growth rate in the first quarter
of 1975 was 9.8 per cent at an annual rate, down from 14.1 per cent in the fourth
quarter of 1974; the individual months showed increases at annual rates of 6.2,
8.7 and 6.2 per cent respectively. The erratic behaviour of food prices, which
complicates the interpretation of other price movements, is shown below the agg-
18
OECD Economic Surveys
régate consumer price index. The overall impression from examining the devel¬
opment of prices at various stages of production is that some important turning
points have recently been reached and that, like trade prices, the more stable trend
of wholesale and industrial selling prices is an indication of an early improvement
of the overall price performance.
Over the past two years the growth of earnings has barely kept up with the
rise in prices.
Real compensation per employee and real average weekly earnings
in industry advanced at annual rates of about 1 per cent and about £ per cent in
1973 and 197410 respectively, entailing a downward movement in the
labour share of personal income until the end of the third quarter of 1974
(see Table 6).
Although wage settlements showed an acceleration during the
period, settlements in force (reflecting in some cases settlements made up to two
to three years earlier) barely kept up with the acceleration in prices.
More re¬
cently, that is in the last two quarters of 1974, base rates in wage settlements
have accelerated sharply, with a 19.4 per cent average increase during the first
year of contracts agreed to in the fourth quarter of 1974. To some extent these
figures reflect "front-loading" whereby past inflation losses are made good in the
first year of a contract17. Cost of living adjustment clauses, however, are now
being used more frequently.
It also must be taken into account that the coverage
of these reports is limited and that the fourth quarter figure was based on 106
agreements affecting 250 000 workers. Even so, it is unfortunate that at a time
when a favourable price environment is created by decelerations in import, export
and wholesale prices, an acceleration in wage rates should occur, particularly since
1975 is the heaviest bargaining year in the bargaining cycle.
Table 6
Wages, earnings and labour costs
Per cent changes, seasonally adjusted
Averagel967
1974
1973
1974
1972
Ql
Q2
Q3
Q4
Wage rates: major settlements1
8.4
6.2
11.5
9.8
11.5
12.4
13.0
Settled-in period
Settled-in period: rate for 1st year
Average weekly earnings (industry)
8.0
9.8
14.2
11.5
13.0
14.8
17.4
9.4
11.8
16.8
14.2
16.1
17.9
19.4
7.7
7.2
11.1
10.1
10.7
19.4
15.0
Compensation per employee2
7.3
6.8
11.9
15.1
11.8
15.1
9.8
Real average weekly earnings (industry)3
4.0
1.0
0.5
0
-1.2
5.2
-0.2
Real compensation per employee3
3.6
0.6
1.3
4.5
-0.3
1.4
-4.7
Unit labour costs4
5.1
5.2
12.5
13.6
15.9
21.2
18.3
Productivity6
2.1
1.5
-0.6
1.3
-3.5
-5.0
-7.2
71.0
69.3
69.1
69.1
68.8
69.2
69.3
In force
Labour share of personal income*
1
Settlements «in force» show the rate of growth of the average base rate for all the settlements in force in a particular
period compared with the same period in the preceding year. «Settled-in period» shows the average increase in base
rates provided by all thé settlements reached in a particular period. The rate for the first year covers the increase in base
rates for the first year of one, two and three year agreements.
2
Wages, salaries and supplements plus military pay and allowances divided by the growth of total employment.
3
4
5
6
Deflated by the implicit deflator for consumption expenditure.
Change in compensation of employees over change in real GNP.
Change in real GNP over change in employment.
Compensation of employees over personal income.
Source: Settlements from Labour Canada: Research Bulletin, Wage Developments.
16 This is in strong contrast to the experience of the "Korean War Boom" when, in the face
of a 10 per cent consumer price increase in 1951, real compensation per employee grew by 7.8 per
cent. Of course, in 1951 the increase in export prices (11.9 per cent) and import prices (10.4 per
cent) were not much different from the increase in consumer prices. In the present period [1972(Q4)
to 1974(Q4)], export prices have risen at 22 per cent and import prices at 17 per cent, compared
with a growth of consumer prices of 10 per cent, indicating a much stronger external shock.
17
In most cases much lower rates are built into the contract for following years.
Canada
19
The foreign sector
The balance of payments has exerted a strong downward pressure on Cana¬
dian growth over the past three years. After the cyclically strong balance of
payments positions in 1970 and 1971, when current surpluses were recorded, the
current balance has moved into deficit, with the deficit showing a strong increase
from the second half of 1973 onwards. On an annual basis, the negative contri¬
bution of the real foreign balance (balance on goods and services) has taken
1£ percentage points off the real growth rate in 1972 and 1973 and 31 points
in 1974 (see Table 1).
The main
influences
behind
the
deterioration
of
the
current
account
are
shown in Table 7. The principal weakness has been in the movement of export
volumes, with three successive half years of stagnation or decline recorded
between the second halves of 1973 and 1974, so that at the end of 1974 the
volume of exports was lower than it had been two years earlier.
Import volumes,
on the other hand, continued to grow rapidly, largely reflecting the strong growth
of total domestic demand.
The volume trade balance in 1961
dollars has been
weakening since the second half of 1973. However, the deterioration in the
volume picture has to a large extent been offset by the enormous improvement in
the terms of trade.
From the second half of 1972 to the second half of 1974,
when export volumes stagnated, export prices rose by 54 per cent compared with
a rise of 38 per cent for import prices18. The effect of this was to obscure or at
least delay the developing weakness in the current account in value terms. In the
last two quarters of 1974, however, the terms of trade deteriorated and the trade
balance moved quickly into deficit.
In viewing current account developments it may be interesting to exclude
certain large items, such as wheat which has shown erratic movements, and others
subject to structural shifts, such as automobiles, in response to the 1965 Automo¬
tive Agreement, and petroleum products in response to the National Energy Po¬
licy. Wheat, petroleum products and automobiles account for about one-third of
exports while the latter two account for almost the same proportion of imports.
Diagram 5 shows that if the three special factors are removed, the growth of ex¬
ports and imports would both have been much slower over the last ten years,
particularly prior to 1973, but the difference between them would not have altered
by much. The adjusted trade balance which excludes the special items would, in
fact, have been lower. Petroleum products made a strong contribution to the
trade balance moving from a net deficit position in the mid-sixties to a surplus
of $1 billion in 1974. Following the Automotive Agreement in 1965, the posi¬
tion of automobile trade improved markedly until 1973 and 1974 when the
strength of Canadian consumption relative to the US pushed up the deficit again.
As is shown in Diagram 6, the decline in Canadian export volumes in early
1973 preceded the decline in the growth of Canada's principal trading partners
by about six months. The explanation for the export volume declines in 1973 is
largely on the supply side where capacity limitations and transportation problems
probably constrained export growth. By 1974, it seems that there is no further
need to look for supply explanations as the decline in economic activity throughout
the OECD area, and in the US in particular, had a clear negative effect.
In
Diagram 5, which shows volume indices, it can be seen that the slowdown in
export growth has been quite wide-spread across commodities.
Developments on the import side have also contributed strongly to the de¬
terioration of the trade balance. On the aggregate level, import volumes contin¬
ued to grow in response to the growth in domestic demand through 1973 and
18 Implicit deflators for goods, actual increase over the period.
Changes in the cur
Table 7juw balance in value and volume
M
Volume figures in 1961C$s. Price indices 1961 = 100, s.a.
Figures in brackets are annual growth rates
1970
1972
1971
1
14 376
Export volumes
15 364
(6.9)
16 209
(6.3)
1973
ll
17 430
(15.6)
1
18408
(13.1)
1974
n
17 880
I
17 787
(-69)
(-0.1)
148.3
175.5
II
17 944
(1.8)
Export prices
117.7
116.9
Export values
16921
17 961
Import volumes
11814
13120
(11.1)
(16.4)
(17.5)
(14.5)
(10.9)
(12.8)
(10.5)
Import prices
117.4
118.4
121.0
121.7
129.0
136.8
152.4
169.2
Import values
13 869
15 534
(-0.7)
(6.1)
(0.9)
(12.0)
119.4
(4.0)
19 354
(10.5)
14691
(2.5)
17 776
(19.3)
121.0
(2.7)
21090
(18.7)
15 923
(1.2)
19 378
(18.8)
133.0
(19.2)
24484
(34.8)
17 042
(12.4)
21984
(28.7)
(26.0)
26516
(17.3)
17 949
(12.5)
24 554
(24.7)
(40.0)
31216
(38.6)
19060
(24.1)
29 048
(40.0)
188.2
(15.0)
33 770
(17.0)
20034
(23.3)
33 898
Trade balance volume
2 562
2 244
1518
1507
1 366
-69
-1273
Trade balance value
3 052
2427
1578
1712
2 500
1962
2168
-128
Net services volume
-1825
-2 000
-2 026
-2133
-2 080
-2 095
-1963
-2 263
Net services value
-2 099
-2 395
-2 544
-2 636
-2 876
-3156
-3 222
-3 916
737
244
-508
-t526
-714
-2164
-3 236
-4 344
953
32
-966
-924
-376
-1194
-1054
-4044
1106
306
-662
-648
-148
-702
-596
-3164
Balance on goods and services volume
Balance on goods and services value
Current balance
value
Sources: Value figures from Statistics Canada, Quarterly Estimates of the Canadian Balance of International Payments.
Deflators from Statistics Canada, Canadian Statistical Review.
b
(36.2)
-2 081
1
I5
Canada
Diagram 5
Balance of Trade Indicators
Value indices
ACTUAL
21
1965 = 100 n.s.a.
TRADE VALUES
TRADE VALUE
EXCLUDING
WHEAT, PETROLEUM AND AUTOS
export*
exports
impor is
-----
imports
400 \-
-| 400
,-! 200
300
200
103
L
1565
100
66
67
INDEX
OF
69
70
71
72
73
74
1965
TRADE BALANCE
06
C7
«
69
70
71
72
73
74
INDEX OF TRADE BALANCE EXCLUDING
WHEAT, PETROLEUM AND AUTOS
30
- 30
20
20
10
10
9ffMÉ£jjil
0
0
-10
-20 L
iS55
65
67
68
69
70
71
72
73
VOLUME EXPORT INDICES (n.s.a.) 1961
74
1955
66
67
69
70
71
73
74
100
303
MelrJs and minerals
Chjmicals
72
-1 200
250
250
200
-J 200
150
-
\
Fciiosl [nodncts
/
100 \-
150
-
ICO
\
55
95
Aulas
50
55
-
-
U
90
65
1972
1973
* 1972 = 100.
Source: Bank of Canada Review.
1974. At the disaggregated level, as shown in Table 8, import volumes have
received a strong impetus from the investment boom. Since the import content
of investment expenditure is high, a high investment component of final demand
will tend to increase imports.
Furthermore, there seems to be evidence that when
investment demand reaches a very high level, not only do domestic supply con¬
straints set in, but also a higher proportion of investment is shifted towards newer
fields dependent on imported technology, thus increasing the import content of
investment expenditures. This appears to have been the case in the present in¬
vestment boom, particularly with regard to non-residential construction where total
OECD Economic Surveys
22
Diagram 6
Exports and Market Growth
Source: Volume of merchandise exports from Statistics Canada, National Income and Expendi¬
ture Accounts. Secretariat estimate for market growth is an index, 1969(4) = 100 of quarterly
real GNP growth in major markets.
Table 8
Import volumes
Annual rates of growth
1968 to 1971
1972 to 1974
Industrial materials
9.4
7.9
Construction materials
3.5
29.7
Producers' equipment
6.8
16.7
Food
1.4
-1.0
Other consumer goods
Motor vehicles and parts
8.3
11.8
9.4
10.6
Source: Bank of Canada Review.
expenditures in constant prices rose by 8 per cent with imports of construction
materials rising by 30 per cent.
Investment in machinery and equipment showed
a real increase of 12 per cent over the same period, while imports of producers'
equipment rose 16J per cent.
The extent to which the deterioration in the Canadian balance of payments
can be accounted for by the cyclical development of the Canadian economy vis-àvis the rest of the world is difficult to determine accurately.
However, a useful
approximation can be made by using a model of world trade to simulate the dif¬
ference between the actual development of the Canadian balance of payments
and that which would have resulted had Canada and the rest of the world grown
at capacity rates during the period19. This simulation was run on the trade
balance over the period from 1973 to 1975, using OECD forecasts for 1975.
19 The model employed for this is the OECD trade model explained in L. W. Samuelson
"A New Model of World Trade", OECD Occasional Studies, November 1973. A more detailed
account of the simulation method, assumptions and results is given in Annex A.
Canada
23
Broadly speaking the results lend weight to the view that the deterioration in the
Canadian balance of payments is largely a cyclical problem.
Had the rest of the
world continued to grow at about capacity rates, the real trade balance would
have shown a reasonably smooth development remaining in surplus throughout
the period. However, a rather sharp fall in the balance would have been obser¬
ved in the second half of 1973, confirming the earlier evidence of supply-induced
declines in real exports in that period.
Converting this into nominal terms20 the
trade surplus would have shown a rapid increase up to the first half of 1974 and
an equally rapid decline thereafter, reflecting the movement in Canada's terms
Table 9
Capital Account
1973
I
Direct investment in Canada
Direct investment abroad
Portfolio transactions
Other long-term capital movements
Resident holdings of foreign currency
1974
n
n
I
310
410
185
250
-140
-450
-300
-345
309
440
942
963
-5
-215
-378
-373
-217
-340
205
6
123
Non-resident holdings of Canadian
short-term paper
Other short-term capital movements
Net capital movement
153
-38
-44
-120
-139
547
120
290
-332
1157
744
Current account balance
-419
54
-809
-1068
Net official monetary movement
-189
-278
348
-324
Source: Statistics Canada, Quarterly estimates of the Canadian balance of international payments.
Diagram 7
Effective Exchange Rates
Percentage changes from 1st quarter 1970
Weekly averages of daily figures
I[
«.
S^.'lJiîc-iîcn tine: ID-mvl*. II.
c.
End-Jim- I9J3 fair:
15
10
S
[
-5
-10
-15
-20
-35
-20
20 Prices are not fully endogenous in the model, so actual export and import prices are used
to convert the cyclically adjusted real trade balance into nominal terms.
24
OECD Economic Surveys
of trade which is itself a result of the strong expansion and then contraction of
world demand.
The current account deficits in 1973 and 1974 do not seem to have presented
financing difficulties (see Table 9).
In 1973, a modest reduction in reserves was
experienced, while in 1974, there was virtually no change.
In the first half of
1974 the current deficit was more than matched by net capital inflow, while the
second half saw a rundown in reserves.
The movement in reserves from April
1974 to April 1975, however, shows a substantial decline of about $J billion.
As a result of the support given to the Canadian dollar, official holdings of U.S.
dollars have fallen by slightly over a billion, which has been partly offset by an
increase in borrowings of Canadian dollars through the IMF. The effective ex¬
change rate, although relatively stable compared with the experience of most coun¬
tries through its close ties with the US dollar, has undergone some important
changes.
Despite the intervention, the Canadian dollar fell from a fourteen year
high of US $1.0443 in April 1974 to a post-Smithsonian low of US $0.9762
by May of 1975, a depreciation of 6^ per cent.
n
ECONOMIC POLICY
The stance of demand management policy was generally expansionary as
late as the early months of 1973, aimed mainly at reducing unemployment. Dur¬
ing the remainder of 1973 and into 1974, the rapid rise in prices and the app¬
earance of capacity shortages led to the adoption of a tighter policy stance.
Monetary policy moved towards restriction and the May 1974 budget was planned
to have a broadly neutral fiscal impact21. By the late summer, the continued
deterioration of the United States economy and the negligible growth in the rest
of the OECD area was clearly having a depressing effect on the Canadian econo¬
my. The need to prevent the economy from succumbing to these strong external
pressures, and following the United States into a deep recession, became the cen¬
tral preoccupation of economic policy.
Up to mid-1974 policy was successful in maintaining real growth rates
higher than the OECD average, and much higher than in the United States (see
Table 10).
But the decline in activity in the second half of 1974 and the weak
outlook for 1975 illustrate the limitation of expansionary fiscal and monetary
policies in the face of strong external deflationary forces. The evidence suggests
that relatively expansionary Canadian economic policy22, assisted by a longer term
investment boom and a negligible "oil crisis" impact, delayed the economic down¬
turn from nine months to a year behind that of the United States23 and made it
21
The May budget was not passed by Parliament.
22 Although it is difficult to date the exact duration and intensity of demand-management
policies, Canadian policy must be rated much less restrictive than that of the US. The period of
restrictive monetary policy started later in Canada, and both the operative budgets (February 1973
and November 1974) had an expansionary intention. To the extent that fiscal policy was not
expansionary, this was due to fiscal drag, which strenuous efforts were made to offset. In the US,
the budgets for fiscal 1973 and 1974 were restrictive in intention and more so in application. Fiscal
drag was not offset and the budget deficits were the result of the unforeseen weakening of the
economy.
23 The 3.7 per cent growth achieved by Canada in 1974 is its highest in any US recession
year. The real output growth rates for Canada and the US in previous US recession years are:
Year
1954
1958
1960
1970
US
-1.4
-1.1
2.5
-0.4
Canada
-1.2
2.3
2.9
2.5
On a trend deviation basis, (i.e. the point at which an economy switches from growing at above
capacity rates to below capacity rates) the peak for the US was the first quarter of 1973 and for
Canada the first quarter of 1974. On a level basis the first significant fall in GNP occurred in the
first quarter of 1974 in the US and in the fourth quarter of 1974 in Canada.
Canada
Table 10
25
Growth rate comparisons
seasonally adjusted annual rates
1973
1973
1974
1974
I
II
II
I
Canada
6.8
3.7
9.1
4.4
6.0
-1.4
United States
5.9
-2.2
6.9
1.9
-3.4
-3.7
Other OECD
6.3
1.0
8.9
3.7
-0.1
0.8
Source: OECD Economic Outlook.
much less severe. As already noted, an important consequence of the better real
output performance, relying as it did on stimulating domestic demand in the face
of falling external demand, has been the sharp deterioration in the balance of
payments.
Fiscal policy
Fiscal policy has exerted a generally expansionary influence, despite some
changes in policy emphasis. The failure of unemployment to fall appreciably in
1972 during the upturn led to a mildly expansionary budget in February 1973.
The May 1974 budget, formulated during the peak of economic activity and
capacity utilisation represented a change of emphasis as it called for a reduction
in fiscal stimulus to a broadly neutral position. But the budget was not enacted
and by the time the next operative budget was brought down in November 1974
the peak of activity had passed, industrial production had been falling since March
and the decline in the United States economy had become marked.
Furthermore,
unforeseen price rises had pushed up budgetary revenues, pointing to a budgetary
surplus in fiscal 1974/75 and a halving of the financial requirement (excluding
foreign exchange transactions)2*. The November budget accordingly called for
a major stimulus in fiscal 1975/76, which was forecast to involve a tripling of
the financial requirement to $3 billion.
The aim of the November budget was to support the level of activity by tax
reductions and give specific help to certain key sectors (for details, see Annex C).
The boost to private consumption provided by the tax cuts was to be accom¬
panied by limits on government expenditure, and the sectoral impact was to be
achieved by sales and excise tax reductions. To support business fixed invest¬
ment and residential construction, the sales tax on construction and transportation
equipment was abolished and it was reduced on building and construction mate¬
rials. Further stimulus to residential construction was provided by income tax
concessions25 and a $500 grant for new house purchases. Following the lead set
by the 1973 budget, sales taxes on certain categories of clothing and footwear
were abolished and tariffs on consumer goods and foodstuffs reduced.
Changes
in corporation tax in 1974, on the other hand, particularly those concerning min¬
eral and petroleum production, are likely to result in a substantial increase in
24
In the May budget the financial requirement for 1974/75 (excluding foreign exchange trans¬
actions) was forecast at $2 billion while in November it was reduced to $1 billion.
year basis, the relevant figures (8 millions) are:
Administrative budget surplus (+) or deficit ( )
National accounts surplus (+) or deficit ( )
Total financial requirement (excluding foreign exchange transactions)
Total financial requirement
25
The Registered Home Ownership Savings Plan.
For details see Annex C.
On a calendar
1973
1974
-10
-435
43
685
-993
-1955
-45
-2059
26
OECD Economic Surveys
Table 1 1
The federal budget, fiscal years 1970 to 1976
National accounts basis, S million
Fisical year ended 31st March
1975
1976
Forecast
Forecast
23 568
30 450
33 350
23 726
30175
34 900
-158
275
-1550
1970
1971
1972
1973
1974
Revenue
14 803
15 752
17 845
20 358
Expenditure
13 834
15 729
17 909
20 678
969
-23
-64
-320
Deficit or surplus
(N.A. basis)
Deficit or surplus
(budgetary basis)
Non-budgetary transactions
Total financial requirement
(excluding foreign exchange
transactions)
393
-379
-614
481
-673
250
-1000
-204
-795
-924
-1944
-1017
-1250
-2000
-189
-1174
-1538
-1463
-1394
-1000
-3 000
Sources: Figures up to 1973 from Economic Review, Dept. of Finance
from Budget Speech, 18th November, 1974.
April 1974.
Forecasts and 1974 figures
revenue.
Receipts from corporation tax had already been increasing rapidly in
1973 and the early part of 1974 as a result of the growth of profits (see Table
13).
The resource taxation measures, particularly the disallowance of provincial
royalties and taxes as a deduction in computing taxable income, are expected to
increase the Federal tax share of the production income of corporations producing
oil and gas from 5.6 per cent to 14.4 per cent26.
Both the 1973 and 1974 budgets contained the stated intention of limiting
the growth of public spending so as to make room for the increased private de¬
mand forthcoming as a result of the tax reductions.
In fact, over the four quar¬
ters following the 1973 budget, government current and capital spending at all
levels of government expanded considerably in real terms.
More recently, there
has been a deceleration in real government spending but this may be difficult to
maintain as non-budgetary expenditures, particularly payments from the Unem¬
ployment Insurance Commission, can be expected to increase substantially in
1975/76 in response to the much higher levels of unemployment now envisaged.
In addition since weaker real growth than the 4 per cent used as the basis of the
budget calculations will reduce the growth of receipts, the financial requirement
in 1975/76 will probably be much greater than the $3 billion expected in No¬
vember.
The principal fiscal policy instrument has been changes in taxation. The
changes in indirect and corporation taxes outlined above were minor compared to
the substantial changes made to the personal income tax system. While the chang¬
es brought down in the 1973 and 1974 budgets had a specific counter-cyclical
purpose, they also reflected broader motives. An awareness on the part of the
26 The changes in resource taxation were originally proposed in the May budget and re¬
introduced in a slightly modified form in November. The aim of the measures was to divert into
federal revenue part of the windfall profits which had been reaped by petroleum producers and
subsequently by certain provincial governments in royalty payments and other taxes. Of particular
concern to the Federal government was the difficulties it faced in meeting tax equalisation obligations
to provinces not in receipt of oil royalties. Under the existing agreement, the Federal-Provincial
Fiscal Arrangements Act of 1972, the cost of equalisation payments by the Federal government
could have been raised by as much as $2 billion per year by the end of the 1970s, with even Ontario
receiving equalisation payments. The proposed solution to the problem involves paying
equalisation on all oil and gas revenues received before the international oil disturbance of 1973-74
and one-third of the revenues received afterwards. For an account of the tax equalisation system
see Douglas H. Clark "Fiscal Need and Revenue Equalisation Grants", Canadian Tax Paper, No. 49,
September 1969. The proposed amendment is contained in the Budget Speech, November 1974.
Canada
Table 12
27
Federal and provincial government revenues and expenditures
National accounts basis, S million
Calender years
Federal
Provincial
1973
1972
1974
1972
1973
1974
Revenue
19 412
22 445
29 400
17 725
20 262
24 908
Expenditure
20114
22 402
28 715
18 333
20 432
24 459
-702
43
685
-608
-170
449
Deficit on surplus
Source: Economic Review, Department of Finance, April 1975.
policy makers of the extremely high income elasticity of tax revenues in Canada
had led to doubts about the equity and efficiency of an unchanged tax system in
periods of high rates of inflation. The indexation of the tax system, in particular,
was meant to overcome the unfair system whereby inflation could lead to tax¬
payers' real tax obligations increasing without any increase in their real beforetax income.
On the technical side, there was a desire to overcome the restrictive
effect of fiscal drag. In the present conjuncture of high rates of inflation with
little or no real growth, an unchanged tax system amounts to pursuing a restric¬
tive policy; the progressive tax system which used to be thought of as an auto¬
matic output stabiliser has now become an automatic déstabiliser27.
The major income taxation changes over the past two years (shown in more
detail in the Calendar of Main Economic Events) were :
(0
00
(Hi)
(iv)
The
The
The
and
The
February 1973 budget tax cuts.
6.6 per cent indexing introduced in January 1974.
November 1974 budget tax cuts and exemption increases for 1975
retroactively for 1974.
10.1 per cent indexing introduced in January 1975.
The revenue effects of these modifications are shown in Table
14.
In the ab¬
sence of the above reductions, Federal income tax in 1974 would have been ap¬
proximately 15 per cent higher than recorded and for 1975 the reduction would
be considerably larger.
The largest part of the reduction in income tax receipts
can be attributed to the specific tax cuts contained in the 1973 and 1974 budgets,
with the indexation system accounting for the rest.
Table 13
The growth of taxation revenue
Per cent change
1972
1973
Direct taxes on persons1
12.4
15.6
22.3
Personal income
12.0
14.0
17.0
Personal disposable income
Direct taxes on corporations
12.2
13.8
16.0
11.6
23.6
40.3
Indirect taxes2
14.3
14.0
45.5
1
2
1974
Federal and provincial.
Includes export tax on petroleum.
Source : Statistics Canada, National Income and Expenditure Accounts
27 The Carter Commission on taxation opposed the principle of income tax indexation on
the grounds that it would be destabilising. In the context of the 1950s and 1960s with generally
low inflation rates, positively correlated with the level of activity, this is probably true (depending
on lags). See Report of the Royal Commission on Taxation (Ottawa) Queens Printer, 1967 Vol. 2
p. 33.
28
OECD Economic Surveys
Despite these vigorous efforts to reduce income tax receipts, comparison of
the growth of actual income tax receipts with the growth of personal income in
1974 (see Table 13) shows that the former has still risen faster.
Part of the
explanation for this lies in temporary factors
indexation was not in operation
in 1973, and the tax cuts enacted were not sufficient to counteract the greater than
anticipated rates of inflation that occurred in 1973 and 1974.
The indexation
system itself also contributed through the lagged indexing factor (6.6 per cent
compared with an actual increase in consumer prices through 1974 of 12.4 per
cent)28 and the fact that some exemptions are not indexed.
An additional im¬
portant problem at the moment has been introduced by the tax cuts contained in
the 1973 and 1974 budgets, where progressivity was ensured by including a mini¬
mum and a maximum absolute tax saving. This has led to an increase in the
income elasticity29 of the tax system, which could only be overcome by indexing
the minimum and maximum tax cut in addition to the exemptions and tax
brackets.
For 1975, however, income tax revenue is expected to grow less rap¬
idly than personal income as a result of the smaller increase in nominal income
now being forecast, the larger tax cuts for 1975 contained in the November budget
and the higher indexing factor.
Table 14
Reductions in income tax revenue
Calendar years accruel basis, SOOO's
1974
1975
February 1973 measures
900
900
1974 indexation (6.6%)
400
400
November 1974 tax cut
380
1000
330
430
2 010
3 480
Other deductions
1975 indexation (10.1%)
Total reductions
750
Source: Department of Finance and Budget Paper, Supplementary Information, November 1974. Estimates are very
approximate and no account has been taken of the compounding factor in estimating 1975 effects of 1974 measures.
Monetary policy
The formulation of monetary policy has been more limited by external devel¬
opments than has fiscal policy. As a result, it has broadly conformed to the
dominant pattern of OECD countries by becoming less accommodating at the
beginning of 1973 and continuing to move towards restriction until the late sum¬
mer of 1974.
With the extremely free movement of capital between Canada and
the rest of the world, particularly the United States, the scope for independent
monetary policy has to some extent been limited by the willingness to allow ex¬
change rate variations.
The approach of capacity constraints in the early months of 1973 occasioned
the change in Canadian monetary policy away from the strongly expansionary
stance that had been pursued over the previous two years. Policy did not move
28 It is practically impossible to eliminate the lag from a tax indexation system. In the
Canadian case, if the December 1972 to December 1973 increase in the consumer price index had
been used, the indexing factor of 9.1 per cent would still have been below the figure of 1 2.4 per cent
experienced through 1974. If the actual increase of 12.4 per cent had been used, this would not
be known until the end of the year, in which case excess withholding would have taken place during
the year, which could not be reimbursed until the beginning of the following year.
29 Estimates of the income elasticity of income tax revenue (including the present indexation
system and the 1973 and 1974 tax cuts) put it closer to 2 than to 1.
Canada
29
at once to a restrictionary stance, but rather to a reduction in the degree of stimu¬
lus. The reduction in the rate of growth of the narrowly defined money supply
in 1973 mainly resulted from the effect of market-generated progressive in¬
creases in interest rate levels which were felt to be necessary (see Diagram 8).
Short-term interest rates, reflecting partly the policy restraints, but also the strong
demand for funds and the influence of rapidly rising United States short-term
interest rates, rose from approximately 5 per cent to over 10 per cent during 1973.
At the beginning of 1974, there was a short-lived reduction in short-term
interest rates, followed by another rapid upward movement. In the June to
August period, the Bank of Canada intervened by control of chartered banks'
cash reserves80, to cushion the renewed rise in interest rates.
rates were kept reasonably stable;
As a result interest
a contrast to the United States and Eurodollar
rates, which showed further rises during this period. In the period from April
1973 to June 1974, the bank rate was raised from 4f per cent to 9 \ per cent in
eight steps. In the late August and early September period, short-term interest
rates (finance company paper and Treasury bills) started a decline that has contin¬
ued through to early March this year (see Diagram 9). Although the Bank of
Canada aimed at some moderation of the extremely high mid-year interest rates,
the rapid decline that it allowed to occur was largely a market response to the
downward movement of US interest rates
and
to the fall
in the demand for
funds brought about by the slowdown in spending. Monetary policy eased from
late summer until mid-January when it tightened its cash reserve management to
prevent the rapid decline in money market interest rates from becoming excessive.
Several important changes occurred in Canadian financial markets during this
period. First, following a pattern established in 1972, the growth of Ml and M2
moved in different directions. While Ml slowed, on average, between the middle
of 1973 and the end of 197431, M2 accelerated throughout the period. The
fastest growth of fixed term deposits was in the first nine months of 1974 when
they accounted for three-quarters of the growth of total Canadian dollar depos¬
its. Two important explanations for this were the growing preference for
short-term investments caused by uncertainty about future inflation rates and
the unattractiveness of competing assets, in particular the outstanding volume of
Canada Savings Bonds whose yield had fallen behind32. The growth of fixedterm Canadian dollar deposits would have been considerably higher, but for the
"Winnipeg Agreement"38 interest rate ceilings on large short-term deposits,
which diverted funds to the short-term paper market and into foreign currency
denominated fixed-term deposits. The continued growth in bank credit, finan¬
ced by interest bearing deposits does not mean that monetary policy was ineffec¬
tive in discouraging excessive spending, but that the emphasis had shifted to
using the rising cost of credit rather than non-price restrictions on its availa¬
bility.
The company sector raised $10.1 billion in 1974, nearly fifty per cent more
than in 1973.
The share coming from the chartered banks declined to less than
half of the total raised (see Table 15). The strongest growing source of funds
was the commercial paper and banker's acceptance markets. Although bond
raisings increased, little reliance was placed on equity markets, with the overall
30 The principle instruments of monetary policy are movements of the government's cash
balances between the Bank of Canada and the chartered banks, and open market operations.
31 The growth of the narrowly defined money supply has been on average less than that of
national expenditure in money terms from the second quarter of 1973 to the end of 1974.
32 Canada Savings Bonds can be redeemed at par at any time and in the first nine months of
1974 S1.5 billion dollars worth were redeemed.
33 The Winnipeg Agreement set interest rate ceilings on large (over $100 000) short term (up
to 364 days) Canadian dollar deposits. It was established in June 1972 and terminated in January
1975.
OECD Economic Surveys
30
Diagram 8
Growth of Monetary Aggregates
Smoothed Monthly Changes at Annual Rates1
r-
Currency and Demand
Deposits
-10 Lj_i_
I
I
I
I
I
I
I
I
I
l_l
t
1
i_iJ_i
I
l_
Cutiency and Privately
held deposits
0 L
J
JO
F
M
A
M J
J
A
S
0
H
D
J
F
1972
1
M
A
M
J
J
1973
A
S
0
N
D
J
F
M
A M
J
J
A
S
0
N
D
1974
J
F
H
1975
Growth rates calculated from three-month moving average of the aggregates.
Source: Bank of Canada Review.
result that there has been a concentration on short-term debt.
The large loan
raisings combined with a 25 per cent increase in retained earnings made possible
the very high rate of growth of investment expenditure (23 per cent).
Until the
autumn of 1974 the demand component that probably received the strongest
boost from the interest rate and price structure was inventories.
With wholesale
price rises exceeding 20 per cent at an annual rate over the past eighteen months,
there may have been an incentive to finance large inventories at the prevailing
short-term interest rates.
The Federal government's financial requirement of $2 billion in 1974 was
comfortably exceeded by the increase in the amount of government securities out¬
standing with the result that government cash balances rose by the unprecedented
level of $4.7 billion by the end of the year.
The increase in the amount of
securities outstanding is largely a result of the highly successful Canada Savings
Bond (CSB) campaign in November when $4.2 billion was raised
conside¬
rably more than offsetting the redemptions earlier in the year.
In three steps
between December 1974 and March 1975 the secondary reserve ratio of the
chartered banks was reduced from 8 per cent to 5£ per cent.
This was
31
Canada
Diagram 9
Interest Rate Differential and Exchange Rate
SHORT TER'.l INTEREST RATES
Si
/v\
12
US 90 day conrr.eicial paper ra'.c
11
-
10
v
9
E
<-
/
Canadian 90 day
I
a.
l
I j mi
US dollars per Canadian dollar (average noon).
Source: Bank of Canada Review.
largely a technical change resulting from both the chartered banks' tighter liquidity
position as a result of the CSB issue, and the government's desire, in view of its
strong cash position, to reduce its treasury bill issues (much of which were used
to form secondary reserves).
Prices and incomes policy
During the early part of 1975 a number of exploratory meetings of all inte¬
rested groups were held with the aim of finding a workable price and incomes
policy on a voluntary basis. No firm plans have yet been announced but a dis¬
cussion draft of a programme has been released.
Target rates of inflation meas¬
ured by a cost-of-living index would be established and wage and salary settle¬
ments would be expected to conform to this. The room provided for improve¬
ments in real wages by taking account of productivity increases and other factors
could be used to provide a catch-up for past real income losses.
Professional
fees, rents and other charges were also expected to rise no faster than the target,
and businesses would be asked to limit price increases to cover increased costs.
A board would be established to assist in the interpretation of the principles,
monitor price and wage claims and publish progress reports.
32
OECD Economic Surveys
Table 15
Major sources of funds raised by private non-financial business1
1973
1972
1973
1974
1974
I
II
I
II
Net New Issues
Bonds
Canadian dollar
Foreign currency
Stocks
Commercial paper
Bankers' acceptances
Total
947
880
1235
397
483
578
1
-6
186
34
-^o
42
144
424
398
376
147
251
71
305
-117
-10
1 117
458
-468
607
510
-13
^18
561
86
-134
226
335
1 242
1214
3 475
1 122
92
1524
1951
2 297
3 836
4 273
1880
1956
2 605
1668
359
578
763
317
261
463
300
125
350
876
150
200
380
496
657
Increases in Loans
Chartered banks2
Sales finance companies
Affiliates of foreign banks3
Industrial Development Bank
Total
Direct investment from abroad
Total funds raised
1
79
151
245
58
93
134
111
2 860
4 915
6157
2 405
2 510
3 582
2 575
715
720
500
310
410
205
295
4 817
6 849
3 837
3 012
5311
4 821
10132
Excludes agriculture.
2 Total business loans excluding provincially-guaranteed loans to utilities, plus foreign currency loans to residents.
3 Annual data are estimated as a proportion of total assets; half-yearly figures for 1973 are distributed on the basis
of changes in short-term paper liabilities of these companies.
Source: Bank of Canada Review, March 1975.
Energy policy
The most important economic effects of Canadian energy policy will be felt
on prices and the balance of payments. The well-head price of crude oil has
been set at $6.50 per barrel since April 1974. An export tax on exports to the
United States set at $5.20 per barrel since June 1974, has been used to subsidise
oil imported into the East. As a result, the Canadian price per barrel of oil has
stayed within the range of $6.50 to $7.20 depending on transport costs. This
already represents a large increase over the prices prevailing in 1973 (39.5 per cent
for fuel oil and 25.2 per cent for gasoline), but is still well below the world price.
The planned move towards the world price, the timing of which is still uncer¬
tain will have a noticeable effect on the general price level. It is estimated that
each $1 per barrel increase in the price of oil (and associated increase in gas
prices) will lead to an initial rise in the consumer price index of between 0.5 and
0.6 percentage points. This means that if the full adjustment to world prices
occurred in 1975, it would add over 2 per cent to the consumer price index.
There are difficulties involved in reconciling a rational energy policy with the im¬
mediate needs of general economic policy. Failure to raise domestic oil prices
to the world level means subsidising oil consumption (the cost of which could not
be met from the dwindling export-tax proceeds) and discouraging exploration.
On the other hand, raising oil prices, particularly if done quickly, could serious¬
ly interfere with the government's anti-inflationary objectives.
On the basis of known reserves, production of oil will peak in 1976 at not
much more than its present level and then decline, so that by 1985 production
will be little more than half of the 1976 level.
Production of oil from tar sands
could make up about half of the decline experienced by conventional production
between 1976 and 1985. The National Energy Board set a limit on exports of
Canada
33
900 000 barrels in 1974, 800 000 in 1975 and 615 000 in 1976. With growing
domestic demand and static then declining production, the prospect is for a sharp
decline in the trade balance in oil and gas. From the 1974 trade surplus on oil
and gas products of $1.0 billion, a deficit could develop as soon as 1976. In
addition, a campaign is being conducted to promote the conservation of energy
through limiting the growth of domestic consumption.
m
PROSPECTS AND CONCLUSIONS
Prospects
1975 may be a difficult year. Real output, which turned, down in the second
half of 1974, is likely to continue to fall in the first half of the present year. The
next twelve months may see some rise in activity, but probably at a rate below
capacity growth so that unemployment is likely to continue to rise from its present
level of 7£ per cent to over 8 per cent in mid-1976. At the same time, while
some modification in the rate of inflation is expected, progress may be slow owing
to numerous lags in the system of price and wage determination.
Recent developments and prospects can be closely related to the course of
events in the rest of the world and particularly in the United States.
Slower
growth of output in 1974 was largely due to the fall in the volume of exports
brought about by the decline in activity in Canada's principal markets.
In the
first half of 1975, the foreign balance is again expected to be contractionary. A
small recovery is forecast thereafter to the first half of 1976. The sharp decline
in the foreign balance and a fall in investment in residential construction are the
main factors behind the fall in GNP in the first half of this year (see Table 16).
During the rest of the forecast period, GNP is expected to grow moderately, but
at a rate below the estimated growth rate of capacity.
With private consumption
likely to rise at a slower rate in the first half of 1976 than in the preceding half
year, some slight deceleration in final domestic demand may occur between the
same periods.
Of the components of final domestic demand, private consumption after
being largely flat in the first half of this year, should rise strongly in the second,
but as noted above, slow down thereafter. Some boost is expected from the 2\
per cent increase in personal income brought about by the high increase in earn¬
ings and the income taxe cuts. In the second and third quarters, the disburse¬
ment of the $800 million of tax refunds is expected to boost the growth of con¬
sumption up to about 6 per cent at an annual rate in the second half of this year
before reverting again to a lower path. A major feature of the forecast is a more
than \ per cent rise in the saving ratio from last year's already high level.
Apart
from the forecast weaknesses in consumer durable expenditure, there are more
fundamental reasons for expecting the saving ratio to rise.
It has been noted34
34 See F. Thomas Juster and Paul Wachtel "Inflation and the Consumer", Brookings Papers
on Economic Activity (I, 1972) and "A Note on Inflation and the Saving Rate", Brookings Papers
on Economic Activity (3, 1972). In the OECD Economic Outlook, December 1974, page 108,
simple consumption functions were run for five countries (including Canada) along the lines sugg¬
ested by Juster and Wachtel. These showed that for all the five countries there was a negative
coefficient (significant in three cases) on the price variable suggesting a positive relation between
saving and the rate of inflation. The inflation variable was the actual change in the CPI minus
the expected change proxied by a weighted average of previous changes. The result does not
change markedly if the simple change in the CPI is used.
estimated from 1956 Q3 to 1973 Q3 is:
The Canadian equation which was
'
Ct = 846.5 + .379 PDYt - 235 (ACPI - ACPIe) - 6.29AU + .58 Ct_i
(2.4)
(6.1)
(2.0)
Ra = .99, S.E./Mean = 0.7%, D.W. = 2.4
(1.2)
(7.9)
Continued page 34 -»
OECD Economic Surveys
that in periods of rapidly growing prices and earnings, lags associated with the
expenditure of rising incomes (especially of such transitory elements as tax reim¬
bursements) lead to a rise in the saving ratio.
In addition, rising unemployment
of the magnitude expected in 1975 and the first half of 1976 provides a strong
precautionary motive for increased savings.
Private non-residential investment is forecast to remain relatively strong in
1975 although it tapers off towards the end of the year and in the first half of
1976.
The January survey of investment intentions showed that despite the
weakening demand picture and the growth of unused capacity, there are some
continuing forces pointing to strength. The survey showed a planned increase in
1975 of 18 per cent in nominal outlays with 21T per cent for construction and
15£ per cent for machinery and equipment. Much of the strength was found in
energy-related investment which is forecast to rise by 35? per cent, accounting for
nearly half of the total increase in outlays. This together with the incentives
provided in the November budget and the generally easy monetary climate should
help to maintain an upward trend of real business fixed investment, but at a
declining rate. Manufacturing investment is forecast to show a strong increase
of 22J per cent, with very modest growth expected for the non-energy resource
sector (forestry and mining). Manufacturing investment, however, may be sub¬
ject to cancellations and postponements in view of the weakening demand picture.
The pattern of development through 1975 and the first half of 1976 will be
strongly influenced by the two most volatile components of aggregate demand
residential construction and inventory accumulation. The Secretariat forecast
contains a very pronounced U-shaped development for residential construction,
but a continued downward movement in inventory accumulation throughout the
forecast period. Housing starts fell sharply in the first quarter of 1975 and in
March stood at less than half the level of a year earlier. Residential construction
is forecast to decline until the third quarter of 1975 when a strong recovery from
the very depressed level is expected. The November budget measures
the
registered home saving plan and the house purchase grant
may play a role, but
the strongest government assistance is expected on the lending side through the
expanded activities of the Central Mortgage and Housing Corporation. As re¬
gards stocks there is clear evidence of involuntary accumulation in the early part
of 1975. Manufacturing inventories have risen despite the fall in production and
the ratio of manufacturing inventories to shipments is reaching turning point
heights. Government current expenditure is assumed to be consistent with the
15 per cent increase in nominal terms envisaged in the November budget, and
government capital expenditure is assumed to roughly follow the January inten¬
tions survey.
A favourable impact is expected from import prices in the second half of this
year and early next year. In addition, the pressure of demand throughout the
economy has been greatly reduced, and the stimulus to price increases provided
by high export prices and rapidly increasing farm incomes has declined marked¬
ly. Against this, strong upward pressure on prices is expected from the growth
of earnings. Base rates, which were moving up at an annual rate of over 17 per
cent in the fourth quarter, may not decelerate as many of the contracts coming
up for renewal in 1975 will require substantial settlements just to make up for
past real income losses. The outlook for prices will to some extent depend on
the effectiveness and timing of the government's prices and incomes policy.
About 1 per cent has been added to consumer prices to reflect the direct effects
End of note 34
Where Q is real consumption, PDY is real disposable income ACPI
ACPIe is the price
variable mentioned above, AU is the change in unemployment, and Q_i is the lagged dependent
variable.
35
Canada
Table 16
Demand and output forecasts
Seasonally adjusted volume figures in 1961 dollars
Rates of change at annual rate
1974
1973
1974
I
Private consumption
Government consumption
Gross fixed capital formation
1976
197S
1973
n
I
II
I
8.0
4.3
1.8
6.3
-0.1
0.8
5.8
3.6
4.1
8.9
4.4
12.0
4.7
3.5
6.0
7.4
10.4
7.4
-0.2
7.7
-0.4
-2.6
4.8
8.3
4.4
9.6
8.7
5.7
19.0
5.7
5.3
5.7
Private residential
12.8
0.8
-27.1
9.7
-28.4
-37.9
3.3
31.9
Private non-residential
3.6
Government
11.3
9.1
6.5
7.5
6.1
7.5
5.3
Final domestic demand
7.9
5.7
1.8
7.5
0.6
0.5
5.6
5.2
Change in stock building1
0.5
1.2
-1.6
2.0
0.2
-2.0
-2.7
-1.8
Total domestic demand
8.3
6.8
0.2
9.5
0.8
-1.3
2.8
3.6
Exports of goods and services
Imports of goods and services
Foreign balance1
8.3
-1.1
-5.3
0.6
0.3
-12.9
5.7
8.2
12.4
9.7
0.7
10.2
9.7
-5.6
4.9
4.8
-1.2
-3.1
-1.6
-2.8
-2.8
-1.8
0.1
0.6
GNP2
6.8
3.7
-1.4
6.0
-1.4
-3.2
3.0
4.2
GNP deflator
7.6
13.1
11.6
13.8
14.1
11.1
10.3
8.8
Consumption deflator
6.1
10.5
11.8
10.1
13.6
11.8
10.1
8.2
1
Change as a percentage of GNP in the previous period.
2
Up to 197411 includes a residual error of estimate not contained in the components.
of the expected $2 increase in petroleum and gas
prices are forecast by the Secretariat to rise at 11.8
basis. Within the year, however, the development
deceleration in the fourth quarter continuing through
prices. In total, consumer
per cent on a year on year
is more favourable with a
the first half of 1976, when
consumer prices are forecast to rise at about 8 per cent at an annual rate.
The deterioration in the balance of payments is forecast to continue into
1975. On the volume side, a very sharp fall in exports and a modest fall in im¬
ports is expected to lead to a large rise in the volume deficit in the first half of
1975. A recovery is expected in the second half of 1975 and into 1976 when
a pick up in demand in Canada's major trading partners, particularly in the United
States is forecast to lead to an improvement in the volume balance. The outlook
in value terms is much weaker. The deterioration in Canada's terms of trade,
which began in the second half of 1974, is expected to continue through to the
end of the year, with the biggest fall in the first half when import prices are
forecast to rise over twice as fast as export prices. The deficit on current account
is expected to peak in the second half of 1975 at a figure of $5 to $6 billion at
an annual rate. There should not be a great deal of difficulty in financing a
deficit of this size. The reserve position is strong and Canada should not ex¬
perience difficulty in attracting capital inflow.
Conclusions
The combination of weak domestic demand and activity, rising unemploy¬
ment, continuing strong inflationary pressures and a large external deficit poses
difficult problems for economic policy. The budget of November 1974 demon¬
strated the Government's desire to minimise the social costs of the downturn.
But although demand-management policies are at present moderately expansion¬
ary, output is expected to fall in 1975 and despite the forecast upturn in the sec¬
ond half of the year, unemployment and the amount of surplus capacity will al¬
most certainly increase in 1976. An important question for the forthcoming
June Budget, therefore, is whether inflation and the current external deficit permit
additional measures to stimulate activity.
36
OECD Economic Surveys
Given the existing degree of slack, a stimulus to demand which aimed at
returning the economy nearer to the capacity rate of growth (over 5 per cent)
over the next 12 months
thus maintaining the present margin of unused re¬
sources
seems unlikely to endanger progress on the price front;
a somewhat
stronger expansion than now envisaged might even help in reducing cost and price
pressures because of the associated improvement in productivity. But the rapid
increase of wages creates a major difficulty for demand-management and has
in part led to discussions about prices and incomes policy.
In these circumstan¬
ces, some additional stimulus to demand may be desirable particularly if it will
help the introduction and acceptance of a prices and incomes policy. However,
if a consensus on such a policy is not forthcoming, the scope for further reflation
will be limited.
The contribution which monetary policy can make to expansion may be
constrained by the need to ensure an inflow of capital sufficient to cover the
current external deficit.
But some re-orientation of fiscal policy might be poss¬
ible.
Fiscal drag has been effectively neutralised for fiscal 1975/76 by the
November tax cuts and the indexation system, and any stimulus from further tax
reductions could be limited, as rising unemployment may lead to much of the in¬
crease in disposable income resulting from any tax cuts being retained as pre¬
cautionary savings. Nevertheless, in determining the appropriate structure of
fiscal policy, due regard should be given to supporting the efforts being made to
obtain acceptable price and wage restraint and to the need to improve regional
and sectoral employment. An immediate recovery might best be promoted by
giving priority to expenditure in areas outside personal consumption. Residen¬
tial construction in particular, given its poor prospects, the limited scope for ass¬
istance it can receive from monetary policy, and the rapid increase in mediumterm housing needs could merit attention. Some boost to business fixed invest¬
ment might also be considered desirable in order to ensure the availability of
capacity to meet the expected upswing in world demand.
Despite the downturn in the economy and the rise in unemployment, wage
rates and earnings are still rising rapidly.
The continuation of recent wage
trends would clearly reduce the scope for further improving price performance
over the next year, even though the contribution of other costs to price rises is
likely to be reduced.
A number of the wage contracts due to be renewed in 1975
(a heavy bargaining year) have been subject to real income losses over the last
two years and a tendency to press for some compensation for past losses in order
to maintain relativities can be expected. In the absence of new policy measures,
the relatively poor price performance in 1973 and 1974 might well extend the
period of high wage increases for a number of years. It was partly with this
difficulty in mind that the Canadian authorities announced recently their intention
to seek a consensus for a prices and incomes policy. Although details of the
policy have yet to be fully spelt out, this initiative is to be welcomed. However,
if the inflationary effects of wage-bargaining are to be broken, it would seem ess¬
ential that the new policy is formulated and introduced with little delay. While
a voluntary policy based on national consensus is clearly preferable to statutory
controls, it may be desirable to consider short-term legislation if agreement
between the parties on the nature of the policy and its safeguards is not quickly
reached.
Although there are inevitable difficulties in introducing a prices and incomes
policy, the general economic environment at present could be more conducive to
the successful operation of such a policy than has been the case for a number of
years. The strains on capacity which prevailed in the early months of last year
have largely been eliminated, the period of rapidly rising commodity prices has
passed and farm incomes are no longer accelerating. The benefits which could
Canada
37
accrue to prices from these factors, however, may be prejudiced unless the growth
of wage costs can be brought under reasonable control.
Although the current external deficit is forecast by the Secretariat to rise
considerably in 1975 to between 5 and 6 billion dollars, equal to over 3£ per cent
of GNP, this should not be a major constraint on domestic demand-management
policies. Canada has traditionally run a current account deficit, financed by
long-term capital inflows, and there are no apparent reasons why this pattern
should not broadly continue, particularly if the present high rate of fixed invest¬
ment should continue or expand.
Nevertheless, it would be desirable over time
to reduce the current account deficit from its present high level.
The size of the
present deficit is to a large extent the result of the differences in intensity and
timing between Canada's cycle and that of other countries, a situation that may be
expected to be largely corrected as recovery in the world economy gets under
way.
In addition, much of the deterioration in the current account forecast for
1975 can be attributed to a fall in the terms of trade, which could be largely
reversed as demand for Canada's exports recovers.
However, an important con¬
dition for a return of the current account to a more normal position is that Cana¬
dian export prices remain competitive.
In this context it is a matter for concern
that industrial earnings in Canada have recently been rising much faster than those
in the United States. In principle, an adjustment of the exchange rate could help
to maintain price competitiveness but a depreciation of the currency would have
important inflationary effects. In these circumstances, it seems that high priority
should be given to the control of domestic prices and costs.
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39
Annex A
CYCLICAL INFLUENCES ON THE BALANCE OF TRADE
This annex gives some more details on the simulations made using a model of
world trade to assess the cyclical impact on the Canadian balance of trade.
The
model used is described elsewhere1, so this annex confines itself to giving an
account of the simulation and brief discussion of some qualifications that have to
be taken into account in assessing the exercise.
The simulation involves two stages.
Firstly real GNP for each country is
constrained to grow at its capacity rate and estimates of volume exports and
imports are obtained from this (the model produces values for total domestic
demand and the GNP gap consistent with this constraint).
Secondly the model
is run again with actual values of GNP and estimates of volume exports and imports
are obtained from it.
The difference between the two series is the cyclical
component of exports and imports.
In the present simulation actual figures for GNP were used up to the second
half of 1974, whereafter the forecast values shown in Table 15 were used.
Annex
Diagram 1 shows the results of the simulation.
The solid line represents actual
volume exports and imports and the dotted line shows what the volumes would
be if the cyclical component was added back onto the actual volumes.
An
indicator of the actual trade balance in 1961 prices and the trade balance after
the cyclical compensation is shown below. The simulation is made in change
form using the second half of 1972 as the base period.
Broadly speaking the results suggest that volume exports would have been
$5 billion more and volume imports $f billion more in the first half of 1976 if
the world had grown at its capacity rate over the preceding 3£ years. This would
entail only a slight fall in the volume trade balance from the figure recorded in
the second half of 1972.
Table 1 shows that the path of actual exports fell below
the path of "capacity" exports in the second half of 1973 and stayed below for
the remainder of the period. In the case of imports the path of "capacity" imports
does not rise above the path of actual imports until the first half of 1975. The
indicator of the volume trade balance shows a decline of about $J billion from
the second half of 1972 to the first half of 1975 and then an improvement of about
$i billion.
A number of reservations must be mentioned in order to asses this simula¬
tion. Firstly like all econometric work it is assumed that relationships which held
during the estimation period also hold during the simulation period. This is
particularly important for such parameters as the income elasticity of demand for
exports and imports and the rate of growth of capacity output. It is likely that
over the past three years when the OECD area has passed through its deepest
post-war recession, substantial structural changes may have occurred which could
lead to changes in these important parameters. Secondly, the specification of the
1 L. W. Samuelson, "A New Model of World Trade", OECD Economic Outlook Occasional
Studies, December 1973.
OECD Economic Surveys
40
Annex Diagram 1.
Estimated cyclical components of the trade balance
HI
TRADE BALANCE
2
1
0
-1
-Z
h
»
1972
i
1972
1973
1974
1975
1976
model does not allow for disaggregated demand components which can lead to
possible biases. In the present case the failure to take account of the present
composition of domestic demand with its high investment component and the
composition of foreign demand with its low component for such important Canadian
exports as automobiles may be misleading. Finally the simulation has not explicit¬
ly taken into account the problem of prices of internationally traded goods.
Although a flat development would be indicated for the volume trade balance if
the cyclical component was removed, a sharp rise then fall would be indicated for
the value trade balance. No allowance has been made for the cyclical component
of the sharp improvement then deterioration in the Canadian terms of trade and
no estimate of whether the terms of trade will return to its former position has
been put forward.
41
Annex B
THE CANADIAN INCOME TAX INDEXATION SYSTEM1
The indexation system was introduced in the February 19th budget 1973,
to take effect from the 1st January 1974.
Its stated aim was to "eliminate the
hidden revenues accruing to governments through the effect of inflation on a
progressive tax system"2.
The method of achieving this involved the following
provisions.
(0
00
To prevent taxable income increasing faster than total income as a
result of inflation3, the main exemptions and deductions were indexed.
These were the basic personal exemption4, the marital exemption, the
dependent exemptions, the amount of tax-free earnings permitted by
dependents and the exemptions for the aged, the blind and the disabled.
Other exemptions, for example, the basic employment exemption and
certain charitable, medical and pension exemptions are not indexed.
To prevent the marginal and hence average tax rate increasing when
taxable income expands at the inflation rate the tax brackets were
indexed.
(Hi)
(iv)
(v)
The indexing factor for a particular taxation year8 is obtained by
dividing the average consumer price index6 for the 12 month period
ending September 30th before that taxation year by the average con¬
sumer price index of the preceding 12 months ending September 30th.
For 1974 the indexing factor was 6.6 per cent and in 1975 it is
10.1 per cent.
The delay from September to January was deemed
necessary for the printing and distribution of the source deduction
tables. The reduction in taxation due to indexing thus starts with the
first pay cheque of the year.
The deductions and tax brackets must be raised by the full amount of
the indexing factor7.
The system is designed to be operative only for increases in the price
level.
If prices fall, the previous year's tax schedule is to remain un¬
changed.
1 This annex is largely based on J. R, Allen, D. A Dodge and S. N. Poddar, "Indexing the
Personal Income Tax: A Federal Perspective", Canadian Tax Journal, July-August 1974.
2 See Hon. John N. Turner, Budget Speech, February 19, 1973 page 19.
3 Even with a proportional tax system, the failure to index exemptions and deductions to
the rate of inflation has the effect of increasing the proportion of total income paid in taxes.
4 The basic personal exemptions account for almost 80 per cent of all exemptions and
deductions from income. Allen, Dodge and Poddar, ibid, page 356. The fact that only the major
exemptions are indexed is common to the Canadian, Dutch and Danish personal income tax indexa¬
tion systems.
5
A taxation year is a calendar year whereas a financial year is from the 1st of April to the
31st March.
6
7
In Denmark the rate of increase of wages is the basis for calculating the indexing factor.
In the Netherlands it is up to the discretion of the government to set the factor somewhere
within the range of .75 to 1.0 of its actual value.
LU
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43
Annex C
CHRONOLOGY OF MAIN ECONOMIC EVENTS
1973
February
19
Budget for 1973-74. The budget
stimulate manufacturing and processing
tion allowances, a reduction from 49 to
1973 of the top rate of corporate tax.
included a number of proposals to
industries including higher deprecia¬
40 per cent as from the 1st January
It also provided for increases in old
age and other pensions and allowances, tariff cuts and some reduction or
abolition of sales taxes on consumer goods.
A 5 per cent cut in personal
income tax with a minimum cut of $100 and a maximum of $500 with
retroactive effect as from 1st January 1973 was made, and the indexation of
personal income taxes was planned as from 1st January 1974.
April
9
The bank rate was raised from 4% per cent to 5 J per cent.
May
30
The bank rate was raised to 5| per cent.
June
27
The bank rate was raised to 6J per cent.
August
7
The bank rate was raised to 6| per cent.
September
13
The bank rate was raised to 7£ per cent.
October
Additional fiscal measures :
(i)
(ii)
(Hi)
Family allowances raised.
Old age pensions and the guaranteed income supplement were
indexed to quarterly increases in the CPI.
A home price scheme for wheat was introduced to insulate
Canadian consumers from overseas price rises. Subsides were
placed on bread, wheat and durum for domestic human consumpiton.
44
OECD Economic Surveys
(iv) A consumption subsidy on milk was introduced.
(v) A freeze on domestic oil prices plus an export tax were introduced.
An export tax of $0.40 was placed on crude oil. This was raised to $1.90 in
December, $2.20 for January 1974.
1974
January
1
The income tax schedules were lowered by the 1974 indexing factor of
6.6 per cent.
7
The oil export tax bill was passed which increased the export tax to
$6.40 for February and March.
28
The Minister of Finance announced the removal of guidelines relating to
the export of capital from Canada.
March
26
A Federal-Provincial agreement set the well-head price of crude oil at
$#50 per barrel effective from April 1st 1975.
April
15
The bank rate was raised to 8£ per cent
May
6
Budget for 1974-75.
This budget was not enacted, as opposition to the
resource taxation proposals led to it being defeated on May 8th.
Most of
its proposals were then incorporated in the November budget. The following
two resource taxation proposals were not incorporated in the November
budget1 :
(/)
Replacement of the 100 per cent write-off for exploration expenses with
a rate of 30 per cent.
The tax rate on petroleum companies was to be set at 30 per cent cf.
with a standard company tax rate of 50 per cent.
(//*)
13
The bank rate increased to 8 \ per cent.
July
16
The repeal of Federal sales taxes on clothing and footwear.
24
The bank rate increased to 9\ per cent.
September
13
The possibility of consultations with various sectors of the economy to
reach a consensus on the means of curtailing inflation was first raised by the
Minister of Finance.
1
The first was dropped and the second was modified.
Canada
45
November
18
Budget for 1974-75 and 1975-76. This budget was an expanded version
of the May budget with a modified set of resource tax proposals.
Its main
proposals were :
(a)
Personal income tax
(0
The minimum tax cut for 1974 was raised to $150.
For 1975,
the basic tax cut was increased to 8 per cent, the minimum raised
to $200 and the maximum raised to $750.
(H)
A deduction of up to $1000 of interest income from taxable
income was introduced from 1974, and extended to include
dividend income in 1975.
(Hi)
O'v)
(b)
A registered home ownership saving plan (RHOSP) was in¬
troduced whereby contributions were tax deductable up to $10,000
(at $1000 per year) if finally put towards house purchase.
The first $1000 of pension income was made tax deductable and
certain age exemptions became transferable.
Corporation income tax
(/)
(//)
A 10 per cent surtax was placed on profits earned from 1st May
1974 to 30th April 1975.
The surtax does not apply to
manufacturing or processing profits, petroleum or mining profits,
small businesses or to investment or mortgage corporations.
A reduction in tax free reserves for banks and other financial
institutions.
(Hi)
(iv)
(c)
An increase in the profit limit from $50,000 to $100,000 for
small businesses eligible for the 25 per cent profit tax.
An extension of the two-year write-off for machinery and
equipment.
Indirect taxes
(i)
Legislative conformation of the reduction or abolition of sales
taxes on clothing and footwear.
Reduction or abolition of sales
taxes on building and construction materials, construction equip¬
ment and transportation equipment. Excises on tobacco, liquor
and wine were increased and tariffs on certain consumer goods
were reduced.
(d)
Resource taxation
(/')
A basic 50 per cent national tax rate was introduced that all
abatements applied to. With abatements, the tax rate on mining
profits became 25 per cent and petroleum profits became 30 per
cent in 1974 with proposed reduction to 28 per cent for 1975
and 25 per cent for 1976 and after.
(it)
Provincial royalties are disallowed as taxable income deductions
against Federal taxes.
(Hi)
18
The equalisation formula used in the Federal-Provincial tax
equalisation scheme was altered.
Full equalisation was retained
for "basic" (not attributable to the international oil disturbance)
but only one-third of "additional" (attributable to the international
oil disturbance) would be equalised.
The bank rate was lowered to 8J per cent.
46
OECD Economic Surveys
22
The new series of Canada savings bonds were withdrawn from sale on
November 15th when gross purchases had reached $5,975 billion.
29
The minimum secondary reserve ratio of the chartered banks was
lowered from 8 per cent to 7 per cent, effective from December 1st1.
December
30
Minimum secondary reserve ratio reduced to 6 per cent1.
1975
January
1
The new indexing factor of 10.1 per cent came into effect.
13
The bank rate was lowered to i\ per cent.
February
27
The Minister of Finance announced the withdrawal of the foreign
borrowing guidelines introduced in 1970.
28
Minimum secondary reserve ratio reduced to 5-J per cent effective as
from March 1st2.
2 A technical change resulting from the chartered bank's tighter liquidity position following
the CSB issue, and the governments desire, in view of its strong cash position, to reduce its treasury
bill issues.
STATISTICAL ANNEX
OECD Economic Surveys
48
Table A
Gross National
Annual figures and annual
CS
Government
Business fixed
Personal
current
Government
consumption
expenditure
expenditure
fixed capital
on goods
formation
Total
Residential
construction
and services
Current
1966
36 890
9 748
2 841
12 520
1967
39 972
11 153
2 954
12 674
2 809
1968
43 704
12 684
2 983
12 771
3 253
1969
47 492
14 241
3 055
14177
3 845
1970
50 086
16 609
3173
14 950
3 608
2 605
1971
53 989
18 485
3 754
16 773
4 553
1972
60 277
20 530
3 950
18 363
5 352
1973
69 094
22 779
4 395
22107
6 508
1974
79 633
27 137
5 448
26 826
7 598
1972:
1973:
1674:
1st
quarter
57 792
19 632
3 836
17 792
4 880
2nd quarter
59 524
19 752
4000
18 340
5 308
3rd quarter
60 856
20 752
4 036
18 652
5 676
4th
quarter
62 936
21984
3 928
18 668
5 544
1st
quarter
66 060
22 056
4104
20 072
5 584
2nd quarter
67 676
22 092
4 372
21740
6 656
3rd quarter
69 972
23 000
4 552
22 628
6 704
4th
quarter
72 668
23 968
4 552
23 988
7 088
1st
quarter
75 720
25 044
4 884
25 992
7 608
8044
2nd quarter
78 520
26 532
5 160
26152
3rd
quarter
81468
28 148
5 712
27 236
7 620
4th
quarter
82 824
28 824
6 036
27 924
7 120
1961
1966
33 619
7 918
2 328
10 542
2178
1967
35 221
8 483
2 396
10 417
2 220
1968
36 966
9126
2416
10415
2 545
1969
38 672
9 461
2 359
11105
2 871
1970
39 475
10 404
2 344
11238
2 636
1971
41642
10 951
2640
12 015
3 133
1972
44 877
11326
2 658
12 526
3 419
1973
48 083
11800
2 790
14150
3 790
1974
50138
12 851
3 059
15 127
3 822
43 588
11060
2 632
12 384
3 228
44 584
11072
2 716
12 612
3 432
45120
11360
2 684
12 624
3 588
46 216
11812
2600
12484
3 428
1972: 1st
2nd
3rd
4th
quarter
quarter
quarter
quarter
1973: 1st
quarter
47 424
11664
2 668
13240
3 368
2nd quarter
47 624
11528
2 800
13 976
3 888
3rd quarter
4th quarter
48 196
11848
2 876
14440
3 876
49 088
12160
2 816
14 944
4 028
quarter
49 960
12 536
2 900
15 616
4156
2nd quarter
50 336
12 868
2 952
14940
4124
3rd quarter
50 616
12 968
3 156
15 020
3 696
4th quarter
49 640
13 032
3 228
14 932
3 312
1974: 1st
Source : National Accounts, Income and Expenditure (Statistics Canada).
Canada
49
Product and Expenditure
rates, seasonally adjusted
million
capital formation
Non¬
Gross
Value
Machinery
residential
and
construction
equipment
of physical
change in
inventories
of goods
Imports
of goods
and services
and services
Exports
Residual
error
national
product
at market
prices
prices
4 664
5 251
1225
13 045
14 259
-182
61828
4 548
5 317
260
14 663
15 234
-33
66409
4 553
4965
745
16 719
17 010
-10
72 586
4 772
5 560
1467
18 761
19 821
443
79 815
5 385
5 957
121
21 171
20 242
-258
85 610
5 952
6 268
201
22 293
22116
23
93 402
6123
6 888
496
24 497
25 305
599
103 407
7 224
8 375
1044
30491
31276
268
118 902
8 925
10 303
2 802
38 252
40737
132
139 493
6 088
6 824
1036
22 780
24 248
660
99 280
6136
6 896
716
24412
24 684
416
102 476
6128
6 848
136
24 012
25 000
624
104 068
6 140
6 984
96
26 784
27 288
696
107 804
6 712
7 776
988
29 024
29 804
484
112 984
7 084
8000
424
29 804
29 776
-196
116136
7 352
8 572
1348
30 236
31208
52
120 580
7 748
9152
1416
32 900
34 316
732
125 908
8 456
9 928
1992
36196
37 084
192
132 936
8 508
9600
3000
37 524
38 744
-336
137 808
9 032
10 584
3 380
39 692
42 408
-120
143 108
9 704
11 100
2 836
39 596
44 712
792
144120
. prices
3 931
4 433
1 155
11640
12 840
-155
54 207
3 679
4 518
189
12 827
13 494
-23
56 016
3 648
4222
638
14 419
14 685
-3
59 292
3 626
4 608
1310
15 830
16 644
355
62 448
3 888
4 714
33
17 315
16 578
-185
64 046
4 053
4 829
169
18195
17 853
23
67 782
3 930
5177
400
19 422
19 915
428
71722
4 288
6 072
763
21017
22 454
196
76 345
4 627
6 678
1708
20777
24 567
106
79199
3 988
5 168
804
18 288
19 092
480
70144
3 984
5 196
356
19 404
19 592
300
71452
3 896
5 140
-56
19156
19 720
444
71612
3 852
5 204
496
20 840
21256
488
73 680
4104
5 768
828
21548
22 344
348
75 376
4 220
5 868
464
21 108
21744
-100
75 656
4 364
6 200
412
20 496
22144
56
76180
4464
6 452
1348
20916
23 584
480
78168
4 660
6 800
1388
21052
24 072
148
79 528
4452
6 364
1936
20476
23 928
-160
79 420
4 588
6 736
1712
21 160
25 172
-28
79 432
4 808
6 812
1796
20 420
25 096
464
78 416
50
OECD Economic Surveys
Table B
Industrial Production,
Seasonally
1968
1
2
3
1971
1972
113.2
Indices of industrial production (1970 = 100):
92.4
98.5
100.0
105.8
Durable manufactures
96.1
103.6
100.0
107.1
115.0
Non-durable manufactures
93.0
99.2
100.0
104.8
111.3
Starts
196.9
210.4
190.5
233.7
249.9
Completions
171.0
195.8
175.8
201.2
232.2
Under construction1
126.6
137.4
148.2
177.3
188.6
7 919
8 162
8 374
8 631
8 891
6 992
7 245
7 368
7 569
7 848
New residential construction (thousands, annual rates) :
Employment and unemployment:
109.8
107.9
115.7
114.8
110.4
122.1
125.2
122.8
121.6
123.7
Durables
131.7
136.7
132.8
131.4
134.9
Non-durables
114.4
115.9
114.7
113.7
114.7
109.5
111.9
112.6
114.6
116.0
382
382
495
552
562
4.8
4.7
5.9
6.4
6.3
40.3
40.0
39.7
39.7
40.0
2143
2 283
2 336
2 554
2 825
4 670
Mining
Manufacturing
Public utilities
Unemployment (thousands)
Unemployment (percentage of civilian labour force)
Average weekly hours worked in manufacturing
5
1970
Total
Civilian labour force (thousands, monthly averages)
Non-agricultural employment
(thousands, monthly averages)
Employment indices (1961 = 100):
4
1969
Retail sales ($ million, monthly averages)
Orders and inventories in manufacturing ($ million) :
New orders (monthly averages)
Unfilled orders lend of period2)
Total inventories (end of period)
1
2
3 496
3 887
3 849
4 215
3 943
4 394
4 551
4 736
5 421
7000
7 586
8169
8 421
9 042
Not seasonally adjusted, end of period.
3-month averages for quarters.
Sources: OECD, Main Economic Indicators; Canadian Statistical Review and Bank of Canada Review.
Canada
51
Employment and other Business Indicators
adjusted
1972
1973
1975
1974
1974
I
11
III
rv
I
II
m
IV
I
122.5
125.7
121.3
122.7
121.9
124.9
127.9
126.7
125.2
123.6
120.2
125.9
129.5
125.8
124.9
125.1
127.7
132.3
129.6
129.0
127.7
120.2
119.0
121.8
117.4
119.9
117.5
120.8
124.7
123.5
121.4
117.9
118.3
268.5
222.1
260.4
275.7
269.7
264.2
284.7
247.4
205.4
176.5
163.1
246.6
257.2
240.0
244.0
251.0
250.1
277.3
266.8
245.0
248.2
221.5
207.2
168.4
177.0
196.5
208.1
207.2
191.2
198.8
194.0
168.4
120.9
9 279
9 662
9147
9 278
9 279
9 401
9 533
9 590
9 721
9 805
9 913
8 292
8 664
8122
8 292
8 325
8 426
8 530
8 538
8 755
8 767
8 749
111.4
115.7
110.8
110.8
111.1
112.6
114.0
115.1
116.1
117.5
115.8
129.9
133.8
127.3
129.1
130.5
132.7
134.1
134.6
134.1
132.4
127.2
144.1
149.4
140.1
142.4
146.3
147.7
148:9
150.7
150.6
147.5
140.0
118.4
121.1
117.0
118.5
117.6
120.4
122.2
121.4
120.7
120.1
116.9
118.0
124.6
117.5
119.6
114.4
120.6
122.9
124.3
124.7
126.5
127.7
520
525
541
509
510
513
520
509
520
549
683
5.6
5.4
5.9
5.5
5.5
5.5
5.4
5.3
5.3
5.6
6.9
39.6
39.0
40.2
39.5
39.2
39.6
39.5
38.8
38.7
38.6
38.5
3 186
3 652
3 077
3139
3 226
3 296
3 479
3 619
3 783
3 734
5 652
6 826
5 350
5 363
5 745
6186
6498
6 665
7 041
7108
6 774
7 935
10413
5 719
6056
6 713
7 548
8 320
8 997
9 826
10406
10 207
10 630
14 394
9 379
9 789
10151
10 650
11534
12 515
13 427
14 733
15 096
.
OECD Economic Surveys
52
Table C
1968
1
of which: Food
Non-food
Wholesale prices, all items
of which: Manufactured goods
Farm products
1971
1972
92.6
96.8
100.0
102.9
107.8
94.0
97.8
100.0
101.3
109.0
92.1
96.3
100.0
103.5
107.3
94.2
98.6
100.0
101.2
108.3
94.4
98.8
100.0
103.7
111.2
95.9
100.1
100.0
99.0
110.9
Wages and profits (seasonally adjusted) :
Hourly earnings in manufacturing (1970 = 100)
Corporate profits before tax (S million, annual rates)
3
1970
Prices (1970 = 100):
Consumer prices, all items
2
1969
Prices,
85
92
100
109
118
7 742
8 294
7 730
8 983
10 836
26 379
27 336
29 888
35 611
40 72
13 622
15 030
16615
17 783
19 94
7 880
7 296
9 093
10317
10 68
30.3
26.7
30.4
29.1
Banking ($ million, end ofperiod) :
Chartered banks:
Canadian dollar deposits
of which: Personal savings deposits
Liquid assets
Liquid asset ratio (per cent)
Holdings of Govt, of Canada direct and
guaranteed securities
3 429
2 977
3 889
4 608
4148
15 222
17 420
17 671
20 500
25 028
2 988
3 279
3 483
3 889
3-month Treasury bill yield
6.24
7.81
4.44
3.21
3.65
Yield of long-term Govt, bonds
7.27
8.33
6.99
6.56
7.12
2 250
2 240
2 295
3 170
99
108
100
103
12
5 625
5 068
6 450
8 008
7 52
3 778
2 530
4 084
5 516
4 98
768
880
1562
1881
167»
558
994
351
340
Total loans
Currency outside banks
4
5
25.',
4 438 i
Interest rates (per cent, end ofperiod) :
Miscellaneous:
National Housing Act Mortgage Loans (8 million)
Industrial share prices (1970 = 100)
Security issues, net (5 million)
of which: Govt, provincial and municipal
Corporate bonds
Corporation stocks
Sources: OECD, Main Economic Indicators; Canadian Statistical Review and Bank of Canada Review.
3 48
596
Canada
53
Wages and Finance
1973
1973
1974
1975
1974
I
ii
m
IV
I
n
m
IV
1
116.0
128.6
111.9
114.5
117.7
119.8
122.7
126.8
130.6
134.2
137.1
124.8
145.1
116.9
122.1
129.0
131.9
136.7
142.6
148.1
153.2
156.6
130,3
112.8
122.7
110.2
111.8
113.6
115.5
117.8
121.2
124.5
127.5
131.5
160.6
120.2
126.1
137.2
142.7
152.4
158.1
163.3
168.8
128.0
152.8
120.2
125.0
131.2
135.9
143.6
150.1
156.6
161.0
156.2
189.5
132.2
139.7
172.5
177.1
185.8
190.5
193.0
186.1
168.1
.
164.7
172.4
128
145
124
126
129
133
136
141
149
155
14 275
18 330
12 720
13 352
14 604
16424
17 556
18 684
19 300
17 780
48 565
58 797
41 160
43 662
44 589
48 565
48 457
50 764
53 757
58 797
60209
24 604
29 789
20 934
21983
23 142
24 604
26 398
28 417
30 540
29 789
31366
10 990
12 567
10457
10 718
10 740
10 990
11379
11577
12 017
12 567
12 563
22.2
21.2
24.1
23.6
22.7
22.2
22.0
21.4
21.1
21.2
20.4
160
3 816
4 364
3 855
3 801
3 641
3 816
4 008
3 950
3 986
4 364
4 436
31689
37 568
26 735
28166
29 726
31689
32 874
34 638
36 541
37 568
39 337
5140
5 791
4 358
4 627
4 848
5140
5 022
5 320
5 503
5 791
5 688
6.35
7.12
4.46
5.48
6.50
6.35
6.51
8.75
8.94
7.12
6.33
7.70
8.77
7.30
7.74
7.72
7.70
8.19
9.46
9.67
8.77
8.47
4 056
3 441
807
1364
1024
879
872
1282
723
567
138
115
140
132
130
140
137
123
107
93
mi
6 083
13 939
1554
1931
581
2 017
2 932
1 500
2 058
7 448
3465
2 858
8 455
641
709
179
1330
991
870
806
5 788
1295
1761
1990
341
571
413
435
306
595
455
633
977
577
703
124
137
76
240
151
128
112
313
141
Table D
Balance of Payments, 1965-74
OECD Basis
US $ million
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Current account:
Exports
8600
10 085
11030
13 232
14 504
16 864
18 510
21 194
26 411
34 270
Imports
8156
9 778
10 384
11752
13 475
13 711
15 834
19 343
23 973
32 974
Trade balance
Services, net
444
13471
307
646
1480
1029
3 153
2 676
1851
2 438
1296
-1245
-973
-1529
-1796
-1963
-2 372
-2 511
-2 901
-3 395
-2 099
-903
-938
-327
-49
-767
1190
304
-660
-463
Private transfers, net
-42
13
33
100
49
82
196
232
294
518
Official transfers, net
-86
-154
-169
-124
-132
-193
-200
-230
-256
-339
-1031
-1079
-463
-73
-850
1079
300
-658
-425
-1920
965
Balance on goods and services
Current account balance
Capital account:
Long-term capital
(a) Private
(b)
Official
Basic balance
Short-term non-monetary capital and unrecorded
Balance on non-monetary transactions
Private monetary institutions short-term capital
Assets
Liabilities
Balance on official settlements
1083
1256
1551
2166
707
476
1780
659
659
910
467
553
1260
693
575
961
463
162
159
173
789
998
906
14
-99
819
196
803
8181
-213
4
793
1478
1316
1786
776
1 122
234
-955
-28
139
-453
-1003
-767
-92
-1379
-1681
-459
1825
-241
143
340
475
549
1694
-603
-559
-225
870
Miscellaneous official accounts
(a)
Gold
(b)
(c)
Currency assets
Reserve positions in the IMF
(d)
Special Drawings Rights
-423
-312
-305
-495
-86
1380
727
-265
-883
-205
-554
-751
-2103
-1370
509
-1241
-3 808
-1596
-197
-218
242
446
1608
1284
871
1968
3 543
713
S
172
-280
28
170
54
1608
777
168
-490
-13
"S
-54
-15
6
-159
-4
54
23
70
124
118
126
-467
57
-352
11
-35
193
148
-334
13
328
60
1573
891
348
125
-105
-31
-152
9
-81
1
-28
-133
-325
60
709
-221
1280
1038
293
-427
-158
156
96
-16
-227
272
192
-338
-18
-41
191
182
190
101
2
10
1
Data are adjusted to include debt obligations payable by the United Kingdom, but waived.
2
See footnote 1.
Note
Detail may not add due to rounding.
Sources:
i
3
610
Allocation of SDR's
Change in reserves (+ = increase)
!
413
Use of IMF credit
Special transactions
l
The Canadian Balance of International Payments, Canadian submission lo the OECD and Secretariat adjustments.
14
INTERNATIONAL COMPARISONS
BASIC STATISTICS :
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Iceland
Ireland
INTERNATIONAL COMPARISONS
Italy
Japan
Luxem¬
Nether¬
New
bourg
lands
Zealand
Norway
Portugal
Sweden
Spain
Switzer¬
land
Turkey
United
United
Yugo¬
Kingdom
States
slavia 1
1
Net average annual increase
Employment
Thousands
Mid-1973
Population
1963 to 1973
%
1973
Thousands
Total civilian
Agriculture
Industry
% of total
Other
Production
GDP by sector:
GDP ' per head
1973
Agriculture
1973
$«
%
of total
Other
1973
%
1968 to 1973
7521
9 742
22125
5 027
4643*
61967
52177
8 972
1.87
0.48
0.48
1.55
0.71
0.26
0.88
0.77
5640
3 039
3 818
8 759
2 385
2153
20 953
26202
(3 320)
7.2
0.57
16.1
3.9
6.5
9.5
12.2
7.5
(34.1)
35.5
40.1
43.3
31.3
33.8
35.7
39.3
49.5
57.3
43.8
52.8
62.2
56.7
47.1
48.5
43.0
(25.7)
(40.2)
4900
3 550
4 650
5 410
5460
3 720
4900
5 610
5.8
3.9
12.0
6.3
2.9
7,1 » to it
Industry
GDP ' " annual volume growth
13132
4]'4»ion
50.1
51^5 '«m
5.2""
8.2"
17.1
1790
212
1.37
(88)
(15.9)
(37.5)
(46.6)
4 870
20.4 «
3 051
3 961
8 564
34 730
8138
6431
37 930
56 026
-0.46
1.06
0.68
1.09
2.49
0.43
1.07
12 844
3 879
3 097
13 810
24 553
84 409
26.5
7.1
38.0
36.8
1.17
1.46
0.77
1042
18 310
52 330
154
4 564
1 137
1654
25.1
17.4
13.4
9.0
6.8
12.1
11.4
(3 109)
(28.8)
30.7
44.0
37.2
48.6
36.2
34.7
33.9
(33.8)
44.2
38.6
49.4
42.4
57.1
53.2
2 510
3 760
5 200
8.8
5.9
2130"
18.0 "13
4.4 " "
4410"
5.3 " "
54.7
4 080 »»
4 780
18.8"
5.6
(37.4)
1250
16.3 "
35.5
56.1
1750
6140
12.7 "
(7.3)
(46.2)
(46.5)
6190
3.8
210404
63.4
3.0
4.1
15.1
42.3
31.7
21.5
54.7
64.2
540
3100
6170
2
20 960
0.95
800951"
49.5
50.5
792"
26.1
3.0"
4.4
16.6""
1973
1970
1 972
1971
Television sets, per 1 000 inhabitants
Telephones, per 1 000 inhabitants
1972
1972
Doctors, per 1 000 inhabitants
1971
Gross fixed investment "
Total
S
44.9 " "
28.0 "
33.4
43.2 11
35.5 "
36.6
49^8 " "
28.8
42.4 "
33.9
46.6 " «
13
1972.
53.2 "
61.0
40.6"
51.8 "
59.6
45.1
54.6"
61.7
36.8""
4.2
4.8»»
14
At constant (1970) prices.
3.7
7.6
7.4
3.3
3.5
4.6
5.3
5.9
15
4.3
9.5
5.2
5.3
3.1 »*
4.5
6.4
7.0
3.2
4.6
6.2
2.8
3.6
16
1968.
17
Dwellings started.
6.4
5.5
5.2
4.7
6.8
6.0
5.1
8.9
6.3
4.6
. % Of GNP
Number
1968-72 average
Machinery and equipment
% of GDP'
Residential construction
Other construction
1968-72 average
Gross saving
Public sector. 2*
Total current revenue
Wages /Prices
Hourly earnings "
1973
% of GDP '
% of GDP
Annual increase 1967 to 1972.
%
Consumer prices
GDP ' deflator
Foreign trade
Imports 4S
1972
Balance of payments
Current balance
1968-72 average
5.4"
8.6
7.0
6.3
4.7
4.0
6.4
5.4"
10.6
10.0
10.8
10.5
10.7
314
177
212
321
231
163
260
239
227
226
236
349"
282
256
237
293
340
226
240
499
377
295
199
268
1.25
1.87
1.60
1.50
1.11
1.38
1.41 .«
1.71 «
1620
4.3
4.8"
4.3
9.0
6.9
4.7
30
222
140
31 !»
2.2
14.0 1»
IS
19
Excluding transfer costs of land and existing assets.
Excluding ships operating overseas.
20
11.3
1965-1969.
4.3"
21
1967-1971.
72
81
290
233
4"
219
443
42
241
63
145
333
239
4
305
474
113
320
99
164
576
1.67
1.44
1.83
1.15
1.07
1.31
1.16
1.45
0.98
1.39
1.09"
19.8
8.4
16.5 al
4.7
4.4
4.6
5.8
6.5
5.2
8.0
5.3
4.3
5.9
9.7
24
7.3
9.1
6.9
9.4
7.8
8.3 25
9.5
14.8
7.7
5.5
25.7 »
20.8
23.8
22.9
38.7
23.6
32.1 «
6.6
23
39.3
26.6 «
33.2 1»
33.7"
33.3
22.4
9-328
8.3'
18.3 "
13.5»
11.2"
15.6"
31.3
39.1 "
1.36 "
535
19
314
1.67
0.45
1.29
19.0
24.2
23.1
19.6
17.0 "
10.5
8.8
12.8
8.6
9.5
5.8
9.5
7.0"
5.7
2.7
3.7
5.0
7.1
3.3
3.5
3.5
9.1
7.5
7.7
9.5
11.2
7.8
6.6
6.5
22.0
23.1
22.8
19.2
17.5
26.9
24.9»'
49.9
9.3'»
4.2
4.3
4.0
3.9
6.2
5.5
5.6
3.8
2.6
13.3
7.6
3.9
5.8
3.9
6.2
6.5
5.8
4.4
4.6
4.0
6.4
6.5
5.5
5.2
2.9
17.2
9.3
5.0
4.8
5.9
6.6
6.9».
10.4 36
10.3 2«
27.8
27.8 2"
28.9 »
16.9 *'
21.5 »
44
1.06
23.0
23.4 "
50.1 "
27.1 »
27.5 "
37.9 "
10.0 31
10.2 3Î
12.6 »
9.9 39
6.5"
12.8 ss
9.6 <
6.0 «
16.1 3' as
11.3
6.1
30.2
8.6
5.8
5.0
4.3
10.5
6.6
4.6
4.3
6.0
5.2
6.0
10.5
6.6
4.4
14 570
23130
6 080
3 680
32 070
51150
2530
300
2 240
23 600
24 910
1050
20100
1980
5 810
2 630
7 250
30.9
40.9
21.8
28.6
27.4
16.4
19.9
20.7
39.5
40.6
20.1
8.5
77.8
43.4
23.1
38.3
32.2
16.2
23.2
32.6
7 500
6220
15 430
23 750
6 240
3 700
33 760
55 730
1470
290
1930
24 040
31 800
1 100
21320
2 320
6060
2 220
7 190
10 110
9 720
% of GDP'
16.0
30.5
43.4
22.4
29.4
27.5
17.2
21.6
12.0
38.2
35.0
20.4
10.8
81.5
46.1
27.1
39.9
27.1
16.1
24.4
32.7
% of GNP
%
-2.1»
-0.4
2.5"
0.0
-2.1
-1.2
-0.2
0.8
-3.6
-4.2
-3.3
2.1
1.7
0.3
1.4
-1.0
0.5
-0.1
88.3
42.4
23.3 «
24.7
17.2
14.8
22.8
60.8
30.1
28.1
36.7
23.1
32.0
26.9
119.8
25.3
70.3
23.9
Mill. SDR's
-886
861
864 «
-709
-202
-203
993
-991
-35
152
414
1010
976
-115
79
% of GNP
0.55
0.52
0.93
0.70
1.10
0.52
0.46
1.42
1.03
0.35
0.49
3.3
99.1
-435 «
9 590
9 710
1400"
10.9
900"
7.0
33 620
74 830
22 Government and government enterprise expenditure on machinery
and equipment is included in government current expenditure.
23 " Other construction " included under " machinery and equip¬
ment ". Work in progress on heavy equipment and ships for the domestic
market are included in fixed asset formation.
24
25
26
27
28
" Other construction " included in " residential construction "
Including transfer costs of land.
General government.
Industry.
Manufacturing.
29
Males.
30
Monthly, wage earners.
31
32
33
Mining and manufacturing, males.
Hourly rates in manufacturing.
Hourly wages rates, unskilled workers.
34
Hourly rates in manufacturing, excluding family allowances.
35
Monthly earnings in manufacturing.
Cash payments including
bonuses, regular workers.
36 Hourly rates in industry, males.
37 Monthly.
49.4
6 290
-93
628
1.57 «
25.3
7.6 M!»
8.2"
6.4
206
5.2
10.2
5.4"
458
24.2
11.3"
6.1
324
12.2
11.8
5.5"
2.8
250
8.6
12.4»1
2.9
11.5
299
28.7
41.0
4.2
12.8
243"
8.2
38.0 "
7.8
9.6
211
12.4
39.0
2.4
3.4
361
25.9
44.8
2.0
11.1
220"
12.0
36.2
5.9
9.3
1969.
425"
296
26.3
35.8 "
3 840
100
8.9
36.6
1960
315
24.1
28.2"
320
225
12.1
27.5
3640
206
23.6
26.8
3 240
202
7.9
29.8
4.4"
1 170
209
8.8
19.1
7.3"
11.4
900
114
20.8
22.3
5.3"
2530
173
12.5
24.9
4.4
2 4103»
370
29.0
29.3
4.1
16.81'
2 430
220
10.9
25.9
2 780
160
25.8»
21.4"
1910
13.2
$ million *
Official reserves **, end-1973: per cent of imports of goods in 1973
Change
April 1974 - April 1975
4.7
1370
6180
S million 8
% of GDP'
Exports *'
4.3
11.1
2 990
1970.
7.5
5.1
1200
1971.
GDP at factor cost.
12
38.1 " "
7.2
3000
10
11
57^5 " "
6.2
2913
water).
7 GDP in purchasers1 values.
S At current prices and exchange rates,
9 Fiscal year-Beginning July 1st.
9a Fiscal year-Beginning April 1st.
11.0
9.4
1910
mining, manufacturing, construction and utilities (electricity, gas and
45.9
5.3
3 050
According to the definition used in OECD Labour Force Statistics:
48.3
6.0
3 080
Private and socialised sector.
6
6.4
6.0
2 810
5
50.0
43.8
3.9
1870
Does not include total net migration between Finland and the
Total resident population.
From 1972, including Okinawa prefecture.
41.2
44.2
51.9 «
6.8
2 850
3
4
33.8 ""
39.9 "
58.6 "
5.4
Indicators of hving standards
Private consumption per head
Public expenditure on education
Dwellings completed, per 1 000 inhabitants
Passenger cars, per 1 000 inhabitants
National source.
other Nordic countries.
48.2""
36.2 "
56.1
32.4 "
2 932
0.77
40.1
47.2 "
13 438
1.22
5.5
52.1
350
0.70
44.1
45.0
108 350 <
0.68
5.6
93.7
54 888 3
3 820
21.8
6.3
23.2
33 350
62 690
3 480
21.6
5.3
21.2
-0.2
1.3
-0.5
0.8
69.5
102.8
16.7
20.8
32.9
-340"
41
406
-896
124
1172
-57
50
0.73
0.72
0.76
0.58
38
Manufacturing, including salaried employees.
39
40
41
Hourly rates.
Hourly rates in manufacturing, males.
42
Mining and manufacturing.
Manufacturing, gross earnings per production worker.
43
Goods and services, excluding factor income.
44
Including reserve position in the IMF and special drawing rights.
45
46
47
Including Luxembourg.
Feb. 1974 - Feb. 1975.
March 1974 - March 1975.
48 According to the DAC definition. Including flows to multilateral
agencies and grants by voluntary agencies.
49 Not Development Assistance Committee member.
50 Considered as a developing country for purposes of DAC reporting.
51 Volume, percentage change.
Figures are subject to many limiting
factors. For an explanation see OECD Economic Outlook, simple
definition, December 1970, pp. 65 and 69.
52 The growth which would have occurred in a country's exports if it
had exactly maintained its share in total OECD exports to each of 19 broad
geographical zones.
Net flow of resources to developing countries "
1973
1.10
2.25
53
The difference between the growth rates of markets and exports.
Note
Export performance "
Growth of markets "
1972 to
1961-62 to 1971-72 (average)
Gains or losses
of market shares "
1972 to
10
1973
%
1973
1961-62 to 1971-72 (average)
%
14
13
9
9
9
-12
-3
2.5«
-1
-5.5
2
1.5"
-2
-0.5
4.5
10
8.5
12
8
15
7.5
-10
-0.8
13.5
8.5
-2
1
14.5
14
12
12
8.8
9
8
7.5
5.5
5
0
-6.5
1
1.5
2.5
0.5
13
9
-8.5
3
14
13
9
9
-8
5
8
1.5
10
"2.5
13
12
8
7
8.5
8
9
1.5
7
0
2
-5
2
4
5
13.5
13
-0.5
14
0
14
8.5
14.5
8.5
5
-1
2.5
-3.5
Figures within brackets are estimates by the OECD Secretariat.
Sources: Common to all subjects and countries, except Yugoslavia (for
20
special national sources see above): OECD: Labour Force Statistics,
Main Economic Indicators, National Accounts, Balance of Payments,
Observer, DAC and Statistics of Foreign Trade (Series A); Office Statis¬
tique des Communautés Européennes, Statistiques de base de la Commu¬
nauté; IMF, International Financial Statistics; UN, Statistical Yearbook.
8
4
-2.8
[S]]
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do 75 oi i) ISBN 92-64-11348-7
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