Carney: Economy Stalling

In Canada there will obviously be a big difference between provinces such as Ontario on the one hand and Alberta and Saskatchewan on the other. Canada will always have lots of demand for our natural resources recession or not so the oil industry and potash for fertilizer will still thrive even if some sectors slow down a bit. Ontario is probably already in recession.


Economy stalling: Carney
TheStar.com - Business - Economy stalling: Carney

Full recovery not seen until 2010 as anemic exports stifle growth

April 25, 2008
Les Whittington
Robert Benzie
Staff Reporters



OTTAWA–Acknowledging that the economic storm sweeping North America is worse than expected, the Bank of Canada said yesterday that the Canadian economy is sagging and won't recover fully until 2010.

With weak export sales as the main culprit, Canadian economic growth will drop to a very weak 0.3 per cent in the April-through-June period, significantly lower than the 2 per cent forecast by the central bank only three months ago.

But that's better than the outlook in the United States, which Bank of Canada governor Mark Carney indicated is now experiencing a recession marked by marginally declining economic growth in the first six months of this year.

"Growth in the global economy has weakened" since January, Carney remarked at a news conference to release the bank's latest Monetary Policy Report.

He said this deterioration reflects "the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets." As a result, the Canadian economy will expand by only 1.4 per cent this year and 2.4 per cent in 2009. Not until 2010 will growth reach 3.3 per cent.

Carney said "some further" rate cuts may be needed but gave no indication of the timing. The bank chopped its benchmark rate on Tuesday to 3 per cent from 3.5 per cent, echoing a similarly aggressive cut in March.

TD Bank economist James Marple remarked that the main thrust of the report is "that worsening conditions in the domestic U.S. economy, working in combination with continued problems in credit markets, are expected to bring about a substantial slowdown in global growth."

"We believe that the case for continued monetary stimulus remains strong," Marple concluded in a commentary on yesterday's statement by the Bank of Canada.

Carney told reporters Canada has so far dodged the runaway price inflation on food and other items experienced in other countries. This is because of the price-reducing effects of the federal government's GST cut and the loonie's rise to near parity with the U.S. dollar.

Consumer price inflation, on a year-over-year basis, averaged 1.8 per cent in the first three months of this year.

But there is a threat of higher inflation if demand for commodities in China, India and other emerging economic powers remains robust, the bank said. It said global inflationary pressures "could spill over to Canada and lead to higher-than-projected inflation through increased costs for imports."

The bank also said that business and consumer sentiment in Canada is expected to soften a bit this year.

Yesterday's gloomy prognosis lends credence to those who say Ontario, whose economy lives and dies by exports, will record negative economic growth for the first half of this year.

At Queen's Park, Ontario Finance Minister Dwight Duncan was asked about the growing consensus that the province is already in recession.

"We're experiencing challenges in the economy. I wouldn't accept the premise of that question," Duncan told reporters, noting only one major economist has declared Ontario's economy is contracting.

"We continue to see the consensus estimate predicting growth in each of the next two years – that is not to underestimate the challenges that are before us."

Tim Hudak, Progressive Conservative MPP for Niagara-Glanbrook, said the evidence is clear that "a Dalton McGuinty recession has now hit the province of Ontario."

NDP Leader Howard Hampton said it's time to face the music.

"With jobs vanishing by the thousands, will the McGuinty government admit that the Ontario economy is in recession," he asked.