EDITORIAL PAGE — A tale of two ecomonies

At this time of year, pundits traditionally peer into their crystal balls and predict what is in store for the economy over the upcoming 12-month period. In Canada, the consensus is that 1997 will be strong for the manufacturing and export sector but that the domestic economy is likely to remain weak.

According to the Alliance of Manufacturers & Exporters Canada, which recently published its “Year-End Review and 1997 Economic Outlook,” there are really two economies in Canada.

One is the export economy of goods and services, which encompasses an increasingly large segment of the manufacturing sector. This economy has encountered most of the growth in output, employment and investment over the past six years.

The other is the domestic economy, which is dependent on consumer and government spending, and which has not yet fully recovered from recession.

This economy is barely growing at present and is likely to remain weak throughout the remainder of this decade.

Clearly, ours is a tale of two economies.

In real (inflation-adjusted) terms, exports of goods and services have increased by 90% over the past seven years. Real domestic spending, on the other hand, has risen by only 10% since 1989. For many sectors of Canadian business, including manufacturing, export markets have become the primary source of growth, enabling companies to develop the higher-value goods and services and the economies-of-scale necessary to compete in today’s open marketplace.

What this means to the young and unemployed is simple — don’t bother looking for a job in the public sector, or in service industries that are domestically focused. Instead, seek employment in resource industries or with manufacturing companies that are looking to expand into new markets outside of this country.

Meanwhile, restructuring will continue in the domestic economy. Consumers are restructuring their spending habits in the face of continued job insecurity and stagnant real income growth. Governments are restructuring their expenditures as they struggle to reduce fiscal deficits or maintain balanced budgets, and corporations are continuing to restructure their operations in order to maintain profitability and survive and grow.

The Alliance of Manufacturers & Exporters predicts that high debt levels, slow income growth and relatively low profit margins translate into a weak outlook for domestic spending, employment and capital investment in 1997 and throughout the remainder of the decade.

Yet, while the short-term outlook is none too promising, the Alliance says Canada’s long-term economic outlook is encouraging. A combination of low inflation, reduced public-sector borrowing requirements, a

balance-of-payments surplus, competitive dollar exchange rates and low interest rates is setting the stage for domestic economic recovery. Even so, it will likely be some time before consumer, government and corporate spending shows significant signs of improvement.

Exporters and manufacturers, on the other hand, are looking forward to a bullish 1997 and beyond. Looking beyond our borders appears to be paying off for these groups. In 1980, for example, exports accounted for 25% of Canada’s manufacturing output. In 1996, 60% of Canada’s total manufactured production was exported to other countries — slightly more than 50% to the United States.

The irony here is that while former prime minister Brian Mulroney was reviled for implementing free-trade agreements, our current PM, a former free-trade critic, is reaping the political benefits.