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Thu, May 01, 2003 - Page 12 News List

Canada revises its economic outlook over disease

REDUCED GROWTH The only country outside of Asia to be deeply affected by SARS foresees extensive economic damage arising from both the illness and its ostracizm

REUTERS , OTTAWA

Severe acute respiratory syndrome (SARS) has infected the most robust of the Group of Seven rich industrialized countries and will cost Canada jobs and economic growth, but people may start spending again later in 2003, the head of the Bank of Canada said on Tuesday.

Bank of Canada Governor David Dodge said the reduction in second-quarter economic growth due to SARS would probably come somewhere within the range of private-sector forecasts.

"You can get a number if you look at the private sector anywhere from a quarter to one and a half [percentage points] and it all depends on varying assumptions," Dodge said.

"Probably the number is going to come out somewhere in that range," he added.

SARS has depressed tourism and the lucrative convention business in Toronto, Canada's largest city, which is also the nation's financial capital and accounts for a fifth of output.

"We fully expect that, in terms of employment, there will be an impact in April and May and maybe along into June and we will see that in the employment numbers," Dodge, a former senior official at Health Canada, told the House of Commons finance committee.

The bank said last week that Canada's economy expanded about 2 percent in the January-March quarter and forecast growth would average about 2.5 percent this year. Dodge declined to provide a second-quarter growth forecast.

But Dodge said on Tuesday that second quarter growth would be lower than the bank's forecast last week because of SARS.

Prime Minister Jean Chretien complained that SARS is harming the whole Canadian economy, not just the Toronto area where the outbreak is centered and where 21 people have died.

Canada is the only country outside Asia where people have died of SARS.

"There has been a considerable drop in economic activity in Toronto, but Montreal is also affected as well as Vancouver and Halifax," Chretien said after a cabinet meeting, which was held in Toronto as a government vote of confidence in the city.

"If you go to Europe, you see that people think that Vancouver [on the Pacific coast] is a suburb of Toronto. They don't know that you could fit Europe between Vancouver and Toronto ... the entire Canadian economy will suffer, but we hope not as much as people predict."

A slowing economy may not be totally bad news for the Bank of Canada, which has been raising interest rates steadily for over a year to rein in inflation and cool an economy that has outpaced most other developed nations.

But Dodge made it clear that interest rates would still have to rise, given that inflation is running well outside the central bank's 1 percent to 3 percent target range.

"We will have to increase interest rates slightly because it is possible there will be an excess of stimulus in the economy," he said.

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