| Macroeconomic outlook The Canadian economy is now back on the rails after several quarters of stagnation. Robust employment growth over the last quarter, together with signs of a pick-up in the US economy, point to accelerating GDP growth over the second half of this year and into 1997 (Chart 1). While fiscal policy will continue to act as a major drag on domestic spending, there should be sufficient momentum from exports, and stimulus from monetary policy, to support 2.0% growth in real GDP this year and 3.1% in 1997. Structural changes in the economy, which have held back the expansion, bode well for the future performance of Canadian debt markets. There is a huge fiscal drag ­p; the contractionary imact on the economy of government spending cuts ­p; which we estimate will chop roughly 1.5 points this year from growth. But fiscal deficits are shrinking rapidly. Finance minister Martin will continue easily to better his targets for deficit reduction ­p; and, in the process, eliminate net federal financing requirements by fiscal 1998/99. That would mark the first time in almost three decades that the federal government will not undertake net new borrowing. |