TORONTO, July 17 /CNW/ - Despite a slowdown in economic growth as
measured by the GDP, Canadians' real incomes and purchasing power have
continued to rise, according to a study released today by the C.D. Howe
Institute. In "Richer Than We Think: Why Canadians' Purchasing Power Is Up
While Economic Growth is Down," Policy Analyst Colin Busby says the positive
shock in Canada's terms of trade, which has seen prices for many imports fall
and prices for exports rise, mitigates against expansionist fiscal policy and
loose monetary policy.
Over last decade, he notes, the global demand for oil and gas has sent
energy export prices to historic highs, and the costs of Canada's imports have
fallen, as reflected in prices for machinery and equipment, electronics and
other manufactured goods from abroad. The import-price decline is due in part
to our appreciated currency (and a falling US dollar) and to imports of
low-cost manufactures from countries such as China. Both factors increase
Canada's purchasing power abroad.
To account for terms-of-trade effects, Busby uses "command GDP," an
income measure that gives a rough approximation of the purchasing power
increase generated by expensive exports and cheap imports. By this measure, he
finds, rises in Canadians' real incomes have outstripped growth in real GDP.
Although GDP continues to be one of the most important measures of our
economic circumstances, when import and export prices change profoundly and
quickly, it may send a muted signal.
The study is available at http://www.cdhowe.org/pdf/ebrief_59.pdf
For further information:
For further information: Colin Busby, Policy Analyst, C.D. Howe
Institute, (416) 865-1904 Email: email@example.com