thepeel
Joined: 08 Aug 2004
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 Posted: Thu Nov 22, 2007 6:44 pm Post subject: Canada-U.S. income gap narrows |
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Growth in Canadians' real income has outpaced the U.S. rate of expansion in the last six years, a sharp reversal from the 1990s that stems largely from the boom in resources.
Statistics Canada said Thursday that per capita real income grew by 15.5 per cent between 2000 and 2006, nearly two-thirds faster than the 9.1 per cent growth in the U.S. Real income growth is a way to measure changes in a person's purchasing power that takes into consideration returns from international investment and capital consumption.
�The long downward trend in Canada's fortunes versus its American partner has reversed in very short order. After 2000, real income levels returned to levels not seen since the mid-1980s,� said Ryan Macdonald, the author of the report. �And much of this has been due to the much maligned resource economy.�
Before 2000, the resource economy was waning, commodity prices were weak and the loonie was depreciating. The earnings foreigners received from their investments in Canada were larger than those that Canadians earned from their foreign investments. As a result, real income growth failed to keep pace with real GDP growth.
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Various economic indicators, including income measures, pointed to a long-term decline in the Canadian economy relative to its U.S. counterpart.
�All that has changed with the commodity boom that Canada experienced after 2000,� Mr. Macdonald said.
Since then, export prices have jumped relative to the prices of imports and the loonie has surged. Income flowing from abroad into Canada has increased dramatically, relative to payments abroad.
�At the same time, China and India emerged as important players in the world economy, contributing to a dramatic increase in real income growth in Canada relative to GDP growth,� Mr. Macdonald said.
Rising commodity prices, a skyrocketing loonie and falling prices for manufactured goods have improved Canada's terms of trade in the last four years, while U.S. measures of real income were far less affected by these factors.
�The performance of the Canadian economy post-2000 has shown the advantages of having a diversified economy with a not-insignificant resource base,� Mr. Macdonald said.
Don Drummond, the chief economist at Toronto-Dominion Bank, said real income has benefited from Canada's continued reduction of its foreign indebtedness, at the same time that the U.S. is going further into debt.
�I don't think any county has ever done anything remotely like this in as short a period of time,� Mr. Drummond said of Canada's drastic reduction of foreign indebtedness. �That is what is driving the difference in this Statscan report � we just don't have these big interest and dividend payments that we have to make to foreigners any more. So when we produce something, the income tends to stay here.� |
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