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United States |
The US economy, after struggling with a jobless recovery in
recent years, appears to be responding to strong doses of both
monetary and fiscal policy. Real GDP grew at an annual rate of
7.2% in the third quarter of 2003 and is expected to expand by
2.7% for the year.
Earlier in the year, growth had been constrained by
uncertainty surrounding the situation in Iraq. While GDP
expanded, employment continued to decline and the
manufacturing sector, in particular, struggled with increased
competition from Chinese manufactured goods (see
Special Feature — China). Uncertainty regarding the strength and
sustainability of the recovery and growing fiscal and trade
deficits caused the US dollar to depreciate.
The strong GDP numbers in the third quarter along with renewed
employment growth in the last three months indicate that the
US economy is strengthening. This is due in part to monetary
and fiscal policy stimulus provided by record low interest
rates, tax cuts and increased military spending. GDP growth in
the third quarter stemmed from the housing and consumer
sector, and renewed growth in business investment. In
addition, the depreciation of the dollar has boosted exports.
Most forecasters feel that the US economy will continue to
strengthen with a consensus forecast of 4.0% growth in 2004.
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Canada
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Canadian economic
performance in 2003 was impacted by several unusual shocks (SARS,
BSE, a blackout in Ontario and rapid appreciation of the
dollar). After growing at an annual rate of 2.6% in the first
quarter, real GDP declined by 0.3% in the second quarter, then
rebounded and grew by an estimated 2.0% in the third quarter.
Overall, economic
growth is expected to average 2.1% for the year—roughly
1% less than the March forecast.
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| Canada US Exchange Rate |
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| Bank of Canada |
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Canadian exports, which have been a driving force behind
economic growth in recent years, have been constrained in
2003 by the appreciation of the Canadian dollar and
weakness in the US economy earlier in the year. On the
positive side, low interest rates and high consumer
confidence kept consumer spending and housing investment
strong—largely offsetting losses in other areas.
The combination of unusual shocks and slowing exports
caused employment gains to wane in the spring and summer
and the unemployment rate increased to 8.0% in August. In
recent months, however, employment growth has resumed.
With these shocks behind it, the Canadian economy is
expected to strengthen further in the fourth quarter and
into next year, aided by a strong US economy, low interest
rates and further employment gains. Real GDP is expected to
grow by roughly 3.0% in 2004. Canada has been one of the
top two G-7 countries in terms of economic growth in four
of the past five years and is expected to rank second among
the G-7 again next year (behind only the US).
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