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2003 OECD Economic Outlook, Volume 2003 Issue 2

image of OECD Economic Outlook, Volume 2003 Issue 2

This issue of the OECD Economic Outlook analyses the major trends that will mark the next two years. It  covers the outlook to the end of 2005 and examines the economic policies required to foster high and sustainable growth in member countries. Developments in selected major non-OECD economies are also evaluated. Three analytical chapters look at fiscal policy and its influence on economic activity, fiscal relations across levels of government, and  crubing the growth in government spending and raising its  cost effectiveness.

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Canada

A series of adverse shocks and the sharp appreciation of the exchange rate have caused economic activity to weaken markedly since the spring. The output slowdown and lower import prices have also contributed to a rapid decline in inflation. But continuing robust household spending and the expected global demand recovery should help output growth return to above its potential rate. Over time, rising capacity utilisation and profit growth should also support a pick-up in business investment. The Bank of Canada has reacted appropriately to the changing output and inflation outlook by reversing the earlier rise in interest rates. But since the adverse shocks were temporary, it will need to be ready to resume monetary tightening as soon as the recovery is firmly in place and the output gap is narrowing. The additional public spending announced in the last budget has turned out to be helpful in underpinning economic activity through the recent soft patch, but an expansionary fiscal stance will no longer be justifiable next year and in 2005, when the recovery is in full swing...

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