Economic size and growth

Just as a Canadian family counts its bills and income to get a picture of its economic health, economists measure a country's expenditures and income. Gross domestic product (GDP) is a popular indicator used to estimate the value of economic activity. GDP measures two things at once over a given period of time: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services produced within the country. The reason that GDP can measure both income and expenditure at once is because they are actually the same thing. To put it another way, every transaction has a buyer and a seller—every dollar spent by some buyer is a dollar of income for a seller. Thus, for the economy as a whole, income and expenditure must equal one another.

In 2002, the Canadian economy put in a solid performance, posting the strongest GDP growth of all G7 countries. GDP grew at a rate of 3.3% for the year reaching $1.15 trillion at current market prices.

The growth in GDP reflected an increased demand for big ticket items, such as houses, cars and furniture. Residential construction activity was up 16.2%, the strongest showing since the mid-1980s. This stimulated the manufacturing of construction materials. Retailers’ activity expanded 6.1%, which was most evident in sales at motor vehicle dealers, furniture stores and department stores. Wholesaling activity was also up 7.1% as automotive, lumber and furniture wholesalers had a particularly busy year.

After suffering from a decline in output in 2001, the manufacturing sector posted a respectable gain of 2.6% in 2002. Residential construction demand in North America bolstered the production of wood products, which increased 10.0%. The production of motor vehicles was up 4.8% while motor vehicle parts increased by 9.3%. Canada’s pharmaceutical industry had another good year with output expanding nearly 60.0% over the last two years. However, one of the few weak points was the Information and Communications Technologies manufacturing sector. It continued its downward slide, falling 17.2% over the year.

The year 2003 brought a number of shocks that restrained economic growth. The largest impact on the Canadian economy was probably the rapid rise of the Canadian dollar after years of decline against its American counterpart. By the fall of 2003, the dollar had reached levels not seen for over a decade. As a result, many Canadian exporters saw their profits fall. On the other hand, Canadian travellers found that the price of a cup of coffee in Paris or an excursion to a tropical island had become more affordable.

In May, a single cow in Alberta was found to have bovine spongiform encephalopathy (BSE) or mad cow disease. The repercussions were severe; in 2002, Canada's beef export market was worth about $4.1 billion. Following the imposition of the ban by several countries, however, the value of these Canadian exports dropped to virtually zero. Also, the outbreak of severe acute respiratory syndrome (SARS) in the spring had an impact on tourism, particularly in Toronto. Huge forest fires in Western Canada affected local economies as well. A massive power outage in central Canada prevented millions from going to work for several days.

Compared with much of the world in 2002, including the United States, which was experiencing an economic slowdown, Canada performed relatively well. Throughout 2002 and into 2003, the Canadian economy remained robust. Canada’s GDP grew faster than any other G7 country and employment was strong. Also, interest rates reached record lows, thanks in large part to a low and stable rate of inflation. Low interest rates further contributed to Canada’s strong growth, especially in the housing market. The Government of Canada has also consistently balanced its budget over the last several years. Although a number of shocks did have an impact on the economy, economic conditions are still fundamentally strong in 2003.