An appropriate response to the current economic situation
Since the beginning of the year, even before the attacks of September 11, the international economy has been slowing perceptibly, after a period of very strong growth. The attacks have exacerbated the slowdown.
While the extent of the slowdown is not easy to gauge, it is sufficient to warrant prompt, appropriate economic action on the part of governments.
The 2002-2003 Budget constitutes the action being taken by Québec.
Situation in the United States
More severe economic slowdown than anticipated
It was predicted by the majority of experts that the U.S. economy, after a steady annual rate of growth of over 4% from 1997 to 2000, would grow more slowly in 2001. When the last Budget was prepared, private-sector forecasters projected an average growth of about 2% in the U.S. economy in 2001. Not only did the predicted slowdown occur, but it was also slightly more severe than expected during the first eight months of 2001.
A number of factors combined to exacerbate the economic slowdown in the United States in 2001:
- stronger downturn in stock markets;
- decline in demand for computer and telecommunications equipment;
- strong U.S. currency;
- higher energy and food prices;
- the terrorist attacks on the United States.
Reaction of U.S. authorities
U.S. authorities nevertheless moved quickly to revive the economy and mitigate the effects of the terrorist attacks. Several measures were put forward after September 11. However, despite the U.S. authorities swift response, economic conditions have deteriorated quickly, requiring forecasters to lower the projected growth in the U.S. economy in 2001.
Situation in Québec
Slowdown in the United States affects Québec
The situation in which Québec finds itself stems essentially from the difficulties experienced by the U.S. economy. Not surprisingly, since Québec exports the equivalent of 40% of its GDP outside Canada, and 86% of those exports go to the U.S., the slowdown in the U.S. economy has led to a decline in exports to our number one economic partner.
However, in the days leading up to the September 11 attacks, our economy was still fundamentally sound due, in particular, to high household confidence. Québecs job creation rate also continued to be high, as confirmed in the statistics published in early October.
Thus, overall, the governments financial framework was balanced. Our tax receipts were at the level initially forecast. On the other hand, pressure was being brought to bear on program spending, whereas less was being spent in debt service due to the reduction in interest rates.
In such circumstances, there was no question of tabling a budget. To do so would not have been warranted by our financial performance any more than it would have been by that of the Québec economy.
Since September 11: a level of confidence to be maintained
The events of September 11 have brought about profound changes. Experts now forecast 1% growth for the U.S. economy in 2001 and 1.2% in 2002, one percentage point less than the rate forecast at the time of our Budget last March.
The Québec economy is, of course, directly affected by the accentuation of the slowdown observed in the United States. The impact is felt all the more on our economy since certain sensitive sectors, such as aerospace and tourism, are also sectors of activity in which Québec is a major player.
In the medium-term, our economy will obviously benefit from the massive injections of funds decided by the U.S. government. Québec is one of the biggest suppliers of the state of New York, and Québec businesses will feel the impact of the enormous reconstruction expenditures already being made.
Québecs economy should continue to grow, albeit at a more subdued rate than forecast in last Marchs Budget. Based on the economic support measures introduced through the present Budget, 1.1% growth is expected in 2001 and 1.7% in 2002. These measures alone should boost economic growth by 0.7% and help create or sustain 16 000 jobs.
In the immediate term, however, the Québec government must do everything to maintain the level of activity of businesses, provide job-creating SMEs with the necessary liquidity in these difficult times and stimulate investment. In so doing, it will be possible to preserve the jobs created in recent years.