Carney fears European, U.S. economic woes will hurt Canada
Bank of Canada Governor Mark Carney sees little relief from the economic woes in Europe and the United States that are weighing on Canada’s prospects.
In a speech Tuesday, the central bank head said European financial turmoil is already hurting global markets and commodity prices while the United States is “in the midst of the weakest recovery since the Great Depression.”
“The debt-ceiling fiasco in the United States and the inability, to date, of European policy-makers to get ahead of their crisis have reduced investor confidence in the effectiveness of policy,” Carney told a business audience in St. John, N.B. “The combination of high debt loads and unpredictable politics is toxic.”
He spoke as the Washington, tiffany outlet D.C.-based International Monetary Fund reduced its growth forecasts for Canada for this year and next. In 2011, the Canadian economy will expand by 2.1 per cent, down from 2.9 per cent forecast only a few months ago. For 2012, growth in Canada will be a lacklustre 1.9 per cent, well below the 2.6 per cent growth predicted earlier, according to the IMF.
“Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the agency said in an outlook containing lower expectations across the industrialized world.
With conditions worsening, Canada’s unemployment rate—now at 7.3 per cent—will rise to 7.6 per cent this year and 7.7 per cent in 2012, the IMF said.
Carney said Canadians began the summer with confidence that the recession was a thing of the past. But that optimism has given way to the uncertainty now roiling stock markets in Canada and around the world.
“The fear currently dominating global financial markets has three causes: the deterioration in the global economic outlook, the intensification of the European sovereign debt crisis and growing questioning of the ability of policy-makers to respond.”
He urged Europe’s central bankers to act more quickly to restore confidence in the continent’s troubled financial institutions.
“European authorities need to move decisively to contain the crisis” threatening financial stability in Greece, Spain, Italy and other heavily indebted countries, he said.
“Measures taken must draw private capital back in, rather than merely fund its exit,” the head of Canada’s central bank said.
While not expecting a recession in the U.S., Carney said the American economy will be stuck below its trend rate of about 2 per cent until mid-2012. The weak performance south of the border in key sectors such as autos and housing is already hurting Canada’s economy, he added.
With the IMF forecast as a backdrop, Finance Minister Jim Flaherty was under pressure over the economy again in the Commons. “The International Monetary Fund projects Canada’s unemployment rate will keep rising and is downgrading Canada’s economic prospects,” said NDP finance critic Peggy Nash.
“When will the Minister of Finance finally wake up to our economic reality, or is he happy just to watch from the sidelines as Canadians face another economic downturn,” she asked.
Flaherty turned aside the criticism, saying, “According to the IMF, we are going to have the best economic growth in the G7 over the course of the next two years.” However, Flaherty later acknowledged to reporters that Canadian growth will be “modest” in 2011 and 2012.
Processing your request, Please wait....
