The Canadian economy will post solid growth of 3.2% in both 2002 and 2003, according to The Conference Board of Canada’s Canadian Outlook, Winter 2003.

“Strong consumer spending, helped by 2002’s record employment growth, and anticipated new spending in the federal government’s February budget should maintain Canada’s economic growth at a solid pace in 2003,” said Paul Darby, director of economic forecasting. “New spending in the budget will maintain job growth in the latter half of 2003, which will keep shoppers in the stores in spite of rising interest rates.”

Before any new money is spent, the Conference Board forecasts a federal surplus of $8.7 billion for 2002-03 and $11.2 billion for 2003-04, allowing the federal government to spend in a number of areas. The Conference Board expects the February budget to include $5 billion in additional funding — $3.5 billion for health care, $1 billion to begin implementation of the Kyoto Protocol, and $500 million for defence.

The economy is forecast to achieve real growth in gross domestic product of 3.2% in both 2002 and 2003. The board forecasts that the threat of inflation will cause the Bank of Canada to raise the bank rate 2.25 percentage points between April 2003 and April 2004 to keep inflation under control at 2.5%.

The Canadian economy is expected to post growth in 2003 about three-quarters of a per cent above a moderate growth performance in the United States. Many traditional Canadian export sectors will reflect the weakness south of the border, but Canada is not plagued by the same confidence problem that has beset the U.S. economy. The strong pace of job creation will continue to spur healthy consumer spending.

The most significant threat to Canada’s performance remains a possible slowdown in the U.S. economy due to its lack of job creation in 2002. Another risk is the prospect of war with Iraq. A short war would have only a limited impact, but the consequences of a longer war are more difficult to predict.