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The global economy slowed in 2001 as weakening economic conditions were exacerbated by the September 11 terrorist attacks. Real Gross Domestic Product (GDP) growth slowed from 4.7% in 2000 to 2.4% last year as significant weakness occurred in the more advanced economies, particularly the U.S. and Japan. Developing countries in Asia were less affected, but all regions experienced slower growth due to high oil prices and declining business investment.
A global economic recovery in the coming months will be supported by low interest rates, low inflation, relatively low oil prices, and improved fiscal positions. Real GDP growth in most advanced economies is expected to improve sharply in the second half of 2002, with the exception of Japan which is expected to remain mired in recession. Overall, global economic growth is expected to be 2.4% in 2002.
The U.S. economy slowed dramatically in 2001, but escaped a recession. While the economy did contract in the third quarter, growth resumed in the fourth, avoiding the technical definition of a recession (i.e., two consecutive quarters of negative growth). Notwithstanding this, labour markets experienced a turbulent time in 2001. The economy lost 1.3 million jobs over the last nine months and the unemployment rate increased from 4.0% in late 2000 to 5.8% in December 2001. In response to the slowdown, the U.S. Federal Reserve Board lowered interest rates eleven times. The federal funds target rate is now 1.75%.
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2000 |
2001 |
2002f |
| WORLD |
4.7 |
2.4 |
2.4 |
| Canada |
4.4 |
1.5 |
1.5-2.5 |
| United States |
4.1 |
1.2 |
1.0-2.0 |
| Japan |
2.2 |
-0.4 |
-1.0 |
| European Union |
3.4 |
1.7 |
1.3 |
| Developing Countries |
5.8 |
4.0 |
4.4 |
| Newfoundland and Labrador* |
5.6 |
1.3 |
3.7 |
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* 2000 - Statistics Canada; 2001 and 2002 - Economics and Statistics Branch, Department of Finance.
Source: Various, available on request. |
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| Source: U.S. Federal Reserve and Bank of Canada |
Recent economic data indicates that the U.S. economy is beginning to gain momentum. Employment losses have dissipated in recent months and, with interest rates at 40 year lows, the housing market has remained strong and consumer spending has rebounded. Growth is expected to remain relatively weak, however, until a significant recovery in manufacturing activity and business investment occurs. Most forecasters are predicting growth of 1% to 2% for the U.S. economy in 2002.
Canada, like the U.S., experienced a slowdown in economic growth in 2001 but also avoided a recession. While real GDP growth was weak throughout the year, only the third quarter recorded a contraction. The Bank of Canada acted aggressively throughout the slowdown, lowering the Bank rate ten times to 2.25%, the lowest since the 1960s. Unlike the U.S., Canada did not experience significant job losses, however, the unemployment rate did rise from 6.8% in December 2000 to 8.0% in December 2001 due to continued growth in the labour force. For the year, GDP grew by 1.5% and employment increased by 1.1%.
Most forecasters are predicting real GDP growth of 1.5% to 2.5% in 2002. Modest employment gains and low interest rates should keep the consumer and housing sectors strong, and exports should improve as the U.S. economy recovers. The unemployment rate is expected to stay around 8.0%.
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