Canada will spend the next two years in top spot in economic growth among Group of Seven economies after sharing that honor last year with the U.S., according to a semi-annual report released yesterday by the Organization for Economic Co-operation and Development.

Domestic demand and business investment -- two major drivers of recent growth -- are expected to remain strong but will moderate this year, resulting in gross domestic product growth of 3.3%, the Paris-based organization said.

Real consumer spending jumped 3.9% last year and capital investment in machinery and equipment was even stronger, rising 12.5%.

"While business investment should remain robust, helped by low long-term interest rates, it is unlikely to keep rising at the high rates achieved over the past two years," the OECD said.

The 3.3% GDP growth estimate was down from the OECD's last forecast, which called in December for an expansion of 3.5%. At 3%, the forecast for 1999 GDP growth is also a downward revision. The previous estimate was for 3.3% growth. A definite slowing trend is in evidence, after both Canada and the U.S. managed 3.8% growth last year. However, Canada is due for a softer landing than some G7 members, the OECD said.

Growth in Britain is expected to fall sharply from 3.3% to 1.7% this year, while Japan, whose economy is already reeling, is expected to experience a contraction of 0.3% after expanding 0.9% last year.

In the U.S., GDP growth is seen slowing to 2.7% this year and 2.1% in 1999. The Asian crisis will cut into U.S. exports, but much of the reduction in growth is coming from a natural cyclical slowdown, it said.

"The OECD secretariat's projection suggests a soft landing for the economy, with growth easing back spontaneously and inflation staying under control." Only two G7 countries are expected to enjoy increased growth this year -- Italy's GDP is forecast to grow 2.4% after expanding 1.5% last year, while Germany is looking at a 2.7% gain this year after 2.2% in 1997.

Germany's economy is forecast to add 2.9% in 1999, making it a close second to Canada's 3%.

While unexpected changes in the U.S. economy pose by far the biggest risk to Canada's outlook, the OECD said the Asian crisis could continue to plague the C$ and possibly prompt the central bank to raise interest rates.

"With Asia, including Japan, making up less than 10% of total Canadian exports, related downside risks would seem comparatively small. Nonetheless, the relative importance of commodities to Canada could complicate macro-economic management, being a major factor behind the recent weakness of the Canadian dollar."

The group forecast that Canada's unemployment rate would fall to 8.5% in 1998 and 8.2% in 1999. The jobless rate fell from 9.7% at the start of last year to 8.6% in December. Statistics for March are due for publication this morning and many economists expect the rate to remain unchanged at 8.6%.

	This Information System is provided by the University of Toronto Library and the G7 Research Group at the University of Toronto.
	Please send comments to: g8@utoronto.ca Revised: August 17, 1998.

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