US embassy cable - 05OTTAWA3577

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, Elections 
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