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Business advised to address long-term problems.

While the short-term outlook for Ontario's economy looks bleak, it would be wiser for business to turn its attention to long-term problems, says Tim Whitehead.

Whitehead, an economist with the Canadian Imperial Bank of Commerce, was a featured speaker last month at the Northern Ontario business conference sponsored by the ministries of Industry Trade and Technology and Northern Development and Mines.

During his presentation on the bank's economic outlook for 1992, Whitehead acknowledged that the business community views interest rates, the Canadian dollar and taxation as its three most serious problems.

"All of these are fairly short-term and also out of the control of business," he commented. "I don't want to belittle them as problems, but we are overlooking things that have to be addressed in the long term."

Whitehead identified service, labor-management relations, government regulations and education as our principal long-term problems. Labor-management relations, he explained, affect our ability to deliver goods as promised.

Calling Canada a "very over-regulated market," Whitehead stated that trade barriers between the provinces must be addressed if our country is going to become a competitive nation.

"We must recognize that we have problems and that the government doesn't have the money to solve them," he concluded.

The CIBC has predicted that Canada's economy will continue on the road to economic recovery next year. However, Whitehead warned that the forecasted three-per-cent growth rate will be "anemic" compared to the recovery from the 1981/82 recession.

The bank has predicted that Ontario's economy will also have a sluggish three-per-cent growth rate, fueled primarily by exports and household spending.

However, Whitehead expressed concern that investment by business is expected to be weak because of excess capacity and poor cash flows in several sectors as well as because of a lack of confidence in the business environment.

"The perception is out there that Ontario is not the place it used to be for investment."

Whitehead said the recession was more severe in southern Ontario than in other parts of the country because of the excesses of the mid and late 1980s and also because weak global markets offered little relief for the province's export-intensive industries.

The economic gap between southern Ontario and the rest of Canada has narrowed, and Whitehead expects that it will remain that way.

The economist's forecast contained nothing in the way of positive news for Northern Ontario, particularly for the lumber, pulp, nickel and gold sectors.

With a gradual rebound in housing starts anticipated, the price of lumber is expected to increase slightly next year to $2.95 U.S. per thousand board feet. However, Whitehead cautioned that the bank's forecast does not account for the trade dispute concerning the removal of the 15-percent lumber excise tax.

Pulp prices are expected to remain poor because of excess capacity and weak demand. A slight improvement could be seen at the end of next year.

With a moderate increase in stainless steel production, the bank is predicting that nickel prices will be between $3.40 and $3.75 U.S. per pound.

Meanwhile, gold is expected to be priced at about $380 U.S. per ounce for the next two years.

Whitehead said supply conditions for gold are mixed. While some high-cost African mines have been closed, it is possible that the Soviet Union will continue selling its reserves.

"Inflation has become less, therefore gold has lost its lustre," he added.

Whitehead said inflation has been about three per cent for the second half of this year, and the bank predicts that it will be about 3.7 per cent next year. These figures reflect the weak state of the economy and the fact that it is difficult to pass on price increases to customers.

The bank believes the Canadian dollar will hit a low of about $.865 U.S. sometime in mid 1992.

Whitehead acknowledged that the strength of the dollar primarily resulted from the fight against inflation and also because the Gulf War made our dollar an attractive "petro dollar" to investors.

However, he advised the provinces to look in the mirror when they complain because they have contributed to the problem by creating demand for the Canadian dollar with "a tremendous amount of off-shore borrowing."

The bank predicts that interest rates will stabilize and increase slightly during the second half of next year.
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Title Annotation:economic forecasts for Ontario
Publication:Northern Ontario Business
Date:Nov 1, 1991
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