Canadian Economic Outlook, December 2003: SwissRe

The economy in November continued to bounce back from a sluggish third quarter. The Ivey
Purchasing Managers’ Index for November increased to 58.7, indicating that the economy is
expanding rapidly. The leading indicators grew 0.6% in October and a revised 0.8% in
September, setting the stage for a robust fourth quarter. Over the next few quarters,
improved corporate balance sheets and rising profitability will support strong business
investment and job growth will spur consumer spending growth. These areas will steer the
economy towards real growth of 4.4% in the fourth quarter of 2003 and 3.2% in 2004.

Declining inventories and exports led to disappointing GDP growth in the third quarter. The rising Canadian dollar has prevented Canada from capitalizing on strong US growth.

The labor market will continue to improve in the short run, but the stronger currency will inhibit growth next year. Domestic demand growth has been very strong this year.

Business profitability improved in the third quarter, supporting future investment growth. Inflation will trend lower over the next year as insurance prices and tuition fees stabilize. Although the possibility of a rate cut remains, the Bank of Canada is expected to be on hold well into next year.

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