canadian economy 1990s

The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s, believed to be caused by restrictive monetary policy enacted by central banks primarily in response to inflation concerns, the loss of consumer and business confidence as a result of the 1990 oil price shock, the end of the Cold War and the subsequent decrease in defense spending, the savings and loan crisisand a slump in office construction resulting from overbuilding during the 1980s. The unemployment rate, which had reached 11 per cent in the early 1990s, dropped to below 7 per cent in 2000—its lowest level in over 25 years. And the large U.S. military expenditures during the Vietnam war amplified the boom.

Partly because inflationary pressures in Canada were greater than in the United States, and the inflation psychology was more deeply entrenched, the recession here was more severe than in the United States.The effects of technological change, including a decline in communications costs, meant that, through the 1980s, national markets had become much more susceptible to international competition.

And, in the end, it exacerbates both the booms and the busts.Restrictive monetary policies in the United States and in Canada during the early 1980s finally brought inflation down from its double-digit levels. The problems of the 1990s. Inflation had come down through the first part of the 1980s, but, with an inflationary psychology still very much at work, it picked up again towards the late 1980s. I would also like to talk about the changes that have taken place in our economy over this period, and what these changes mean as we look ahead.Let me take you back to the early 1990s.

That is when the gravity of the problems that would dominate the Canadian economic landscape for much of the decade became clear. Since tomorrow is our next pre-set date for announcing changes in the Bank Rate, I hope you can appreciate that I cannot comment on the current economic situation. Let me take you back to the early 1990s.

Badly managed financial deregulation of the 1980s, in particular removal of bank borrowing controls and liberation of foreign borrowing, combined with strong currency and a fixed exchange rate policy led to a foreign debt financed boom. Let me highlight some of the major improvements.I have already noted the influence of technology and globalization in changing the world economy during the 1990s. Canada did not escape unscathed.Because inflation creates uncertainty, it makes it much more difficult for households and businesses to judge future prices and to make sound economic decisions. … They are released once a year with a five-year lag.It was to the Canadian Club of Toronto that I gave my first speech as Governor of the Bank of Canada seven years ago. Since many of these transactions had been financed by borrowing, debt had risen to high levels.When the Bank of Canada's anti-inflationary policy actions in the late 1980s finally convinced Canadians that inflation would be brought under control, the inflationary excesses that had built up contributed to a severe recession in 1990–91.

Today, too, we face some challenges. It is only fitting that I should be here again today, for my final public presentation before I retire.In early 1994, Canada's economic situation was not that favourable—our economy was facing some rather serious problems. Investment in new machinery, equipment, and technology by Canadian businesses began to pick up in 1996 and, as a ratio of our GDP, has been rising continuously.This pattern looks remarkably similar to the one in the United States—only with a lag of about four years. High inflation encourages speculation rather than productive investments. U.S. firms served both as a role model and a competitive prod in this regard. That is some adjustment!This fiscal restructuring, although essential, was difficult and disruptive.

In the United States, the investment in equipment and technology, which had begun early in the 1990s, started paying off around 1996, with rather impressive gains in productivity. OPEC took advantage of strong world demand to restrict the supply of crude oil and push prices up.