Canada Economy

Thanks to three years of government austerity, a tough anti-inflation stance by the central bank and a boom in trade with the United States, the Canadian economy, which not long ago was derided by international investors as similar to that of a banana republic, may be poised for a long-awaited breakthrough. Recent economic indicators point that way.

The country's economic growth, after several months of lackluster performance, will increase in the second half of the year as interest rates fall and consumer demand grows, the Financial Post reported. The Bank of Canada said strong growth in Canadian exports and lower interest rates have spurred increased consumer confidence and a more stable work force.

While world attention focuses on Mexico's peso crisis, Canada--the United States' other partner in the North American Free Trade Agreement--is struggling with its own economic demons. Continuing a yearlong slide, the Canadian dollar on Thursday hit 70.55 cents, a nine-year low against the American currency, before rallying slightly on Friday. Banks, looking to protect the Canadian dollar, raised interest rates. The prime rate moved to a two-year high of 8.5% and mortgage rates climbed.

If Quebec's voters decide in a referendum election Oct. 30 to launch their province toward independence from Canada, would they also be taking the fast track to bankruptcy? And would they drag the rest of Canada down with them? Montreal clothing manufacturer Alvin C. Segal considered these questions the other day as he contemplated the latest poll showing the election in a dead heat. "I'm feeling very uncomfortable," he said. "I have my life invested here."

Canada's dollar is near an 11-year low, hammered by Asia's financial turmoil and sliding commodity prices, but economists say the situation is a long way from a crisis and may reverse itself by next year. "This is not a currency crisis. It's not even a currency problem of the sort that we saw in 1995. What you have is a currency languishing at levels that had not been anticipated," said Tim O'Neill, chief economist at Bank of Montreal.

The Canadian dollar's value is tumbling, but exactly why is anyone's guess. In the meantime, the currency's slide is making Canada a cheaper destination for U.S. tourists. The Canadian dollar on Wednesday reached a record low against the U.S. dollar: One American buck now buys $1.508 Canadian. That's 6% more than the U.S. dollar bought in April and 12% more than in early 1997. To put the numbers in more perspective, a U.S. dollar was worth just $1.10 Canadian in 1992.

Evidence of how Asia's sickly yen, won and other currencies have infected Canada abounds in this postcard-perfect setting in the northern Rockies. The tour buses that once delivered visitors by the hundreds from Tokyo and Seoul, fueling a boom that transformed this village into a resort with visions of rivaling Aspen, are fewer and fewer.

Canada cut short-term interest rates Tuesday, a move that may make Hollywood executives happy--but not the rank-and-file workers in Hollywood. The move weakened the Canadian dollar, which has been rallying strongly against the U.S. dollar since mid-March. Between spring 1997 and mid-1998 it was the U.S. dollar that was on top, as its value soared against the Canadian currency--a boon for U.S. TV and movie studios that have moved a significant share of production north.

Inside the concrete-slab walls of Stage 6 of the Lions Gate Studios is a Spanish-style building that looks like a small California home, down to its red tile roof and backyard barbecue pit. The cozy abode with its neatly trimmed lawn looks as if it once housed a GI returning from World War II and his family, the kind of place that would easily blend into a neighborhood in San Gabriel, Canoga Park or any number of Southern California communities.