Although real imports are increasing, reflecting such elements as the rise in domestic demand, the recent pace of increase has been moderate, a reflection of the depreciation of the yen to date. As a result, the real trade surplus turned to an increase in the second half of 1996.
These include: stronger-than-expected world economic activity, the continued sharp depreciation of the U.S. dollar against major world currencies (including the Canadian dollar), and a somewhat larger output gap in Canada at the end of 2003. Weighing these developments and their likely persistence, we lowered our projection of output in Canada over the next year and a half.