Cablegate: Canada's Economy Strong As Election Campaign

This record is a partial extract of the original cable. The full text of the original cable is not available.

022101Z Dec 05

UNCLAS OTTAWA 003577

SIPDIS

DEPT FOR WHA/CAN (HOLST) AND INR (SALCEDO)
USDOC FOR 4310/MAC/ONA
TREASURY FOR IMI

E.O. 12958: N/A
TAGS: EFIN ECON PGOV CA
SUBJECT: CANADA'S ECONOMY STRONG AS ELECTION CAMPAIGN
KICKS OFF

REF: OTTAWA 3366 (GOC'S FALL ECONOMIC STATEMENT)

1. Canada's economy continued to accelerate in the third
quarter of 2005, rising 3.6% on a real annualized basis
(versus 3.4% in the second quarter and 2.0% in the first).
While Canada's currency and stock markets have recently
appreciated in line with energy prices, media reports tended
to overstate the connection of GDP growth to high oil and
gas prices in the third quarter. Incentive-driven exports
to the U.S. of autos and parts also played a major role.

2. Production in the mining, oil and gas extraction sector
increased 3.2% in the third quarter, while production of
motor vehicles was up 4.9%. The sustained boom in Canada's
energy sector has lifted business investment, which rose
12.2% in the quarter. On the other hand, the housing sector
weakened by 0.2% and is now down 2.7% from its peak at the
end of 2004.

3. Canada's economy remains in good shape by historical
standards, with low unemployment, respectable growth,
moderate inflation, declining official debt, and the federal
government budget in its eighth year of surplus. Prime
Minister Paul Martin and Finance Minister Ralph Goodale
emphasized this message in the fall economic statement
delivered on November 14 (reftel), which promised personal
and corporate tax cuts spread over five years. Their
Liberal Party is running in part on its economic record in
the general election campaign which began on November 29 and
will end with a vote on January 23.

4. That being said, in recent weeks the economic horizon has
been darkened somewhat by a wave of job cuts announcements
in pulp and paper, auto and pharmaceutical manufacturing.
Delayed impact from the steep appreciation of the Canadian
dollar in 2003-04 (from about 65 U.S. cents to the current
level of about 85 U.S. cents)is the most commonly cited
factor behind the difficulties in the manufacturing sector,
with competition from developing countries an additional
challenge for the pulp and paper industry.

5. Following are selected recent economic indicators for the
third quarter of 2005:

Indicator Change Period
--------- ------ ------
GDP GROWTH (q/q) 0.9% 3Q 2005

TOTAL CPI (y/y) 2.6% October 2005

CORE CPI (y/y) 1.5% October 2005

ENERGY PRICES (y/y) 13.5% October 2005

BUSINESS PROFITS (q/q) 2.9% 3Q 2005

BUSINESS INVESTMENT 3.0% 3Q 2005
IN M and E (y/y)

CONSUMER SPENDING (q/q) 1.6% 3Q 2005

UNEMPLOYMENT(m/m) 6.6% October 2005

NEW VEHICLE SALES (m/m) - 7.9% September 2005

MERCH EXPORTS (m/m) 2.8% September 2005

MERCH IMPORTS (m/m) 1.4% September 2005

DICKSON

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