REBOUND BY MID-YEAR?
Central bank projects growth in late '09
Central bank projects growth in late '09
Alia McMullen, National Post
Published: Friday, January 23, 2009
Chris Wattie, ReutersBank of Canada governor Mark Carney yesterday said a quick economic recovery is expected because the country entered the recession with lower unemployment than in previous years.
Canada likely will begin to emerge from recession by the middle of this year, the Bank of Canada said yesterday amid signs the paralyzed financial system has begun to respond to the extensive actions by the world's governments and central banks.
However, unemployment problems are expected to persist. "Stabilization of the global financial system is a pre-condition for economic recovery," Mark Carney, governor of the Bank of Canada, said at a press briefing in Ottawa yesterday.
He said governments and central banks around the world continued to introduce "bold" measures to address the financial crisis and that there were signs these measures were "starting to gain traction."
These signs included a reduction in global credit spreads and a drop in Canadian mortgage rates.
In an update to its October Monetary Policy Report, the central bank said yesterday the country is in a worse recession than previously thought, but its duration would be shorter and the recovery process faster than the past two downturns.
The Bank of Canada forecast the economy to contract 1.2% in 2009, much worse than the 0.6% decline it predicted in October. However, it expects growth to resume in the second half of this year, and rebound to 3.8% in 2010.
It said the current recession, which started in the fourth quarter of 2008, would last nine months, making it shorter than the downturn of the early 1980s, which dragged out for 18 months, as well as that of the early 1990s, which lasted one year.
For some economists, the Bank of Canada's predictions appear overly optimistic.
"There's significant room for the Bank to be disappointed by the coming data, which may yet prompt further [monetary policy] easing," said Benjamin Reitzes, an economist at BMO Capital Markets.
James Marple, an economist at TD Financial Group, had similar reservations and said the Bank would likely need to cut interest rates to 0.5% when it next meets in March, and keep rates low right into 2010.
"In our view, the recovery in the Canadian economy is likely to be more protracted and the growth rebound will not likely be quite as robust in 2010," Mr. Marple said.
Mr. Carney said the quick recovery was expected because Canada entered the recession with lower unemployment and a stronger fiscal position than in previous years.
He said the Bank of Canada's interest rate cuts, which have lopped 3.5 percentage points from the key rate since December, 2007, would also be "very stimulative."
On Tuesday, the central bank cut the benchmark interest rate by half a percentage point to 1%.
He said the federal government's 2009 budget, due on Tuesday, would also stimulate consumption and investment. "We do expect a substantial fiscal package in Canada," he said.
Economists agreed with the Bank of Canada that many Canadians would continue to grapple with unemployment throughout 2009. Mr. Carney said the economy would begin to recover before the job market because it would take some time for businesses to build up new orders, use excess inventories and regain the confidence to hire again.
"People are going to lose their jobs, the unemployment rate is going to rise, and it is going to take longer to find a job in that situation, whether you want to change jobs or whether you've lost your job and you want to return to work."
Mr. Carney would not estimate a peak for the unemployment rate, but said it would not be as high as in the early 1990s' recession. The unemployment rate, which rose to 6.6% as of December, reached 11.4% in 1993, Statistics Canada figures show.
Chris Wattie, ReutersBank of Canada governor Mark Carney yesterday said a quick economic recovery is expected because the country entered the recession with lower unemployment than in previous years.
Canada likely will begin to emerge from recession by the middle of this year, the Bank of Canada said yesterday amid signs the paralyzed financial system has begun to respond to the extensive actions by the world's governments and central banks.
However, unemployment problems are expected to persist. "Stabilization of the global financial system is a pre-condition for economic recovery," Mark Carney, governor of the Bank of Canada, said at a press briefing in Ottawa yesterday.
He said governments and central banks around the world continued to introduce "bold" measures to address the financial crisis and that there were signs these measures were "starting to gain traction."
These signs included a reduction in global credit spreads and a drop in Canadian mortgage rates.
In an update to its October Monetary Policy Report, the central bank said yesterday the country is in a worse recession than previously thought, but its duration would be shorter and the recovery process faster than the past two downturns.
The Bank of Canada forecast the economy to contract 1.2% in 2009, much worse than the 0.6% decline it predicted in October. However, it expects growth to resume in the second half of this year, and rebound to 3.8% in 2010.
It said the current recession, which started in the fourth quarter of 2008, would last nine months, making it shorter than the downturn of the early 1980s, which dragged out for 18 months, as well as that of the early 1990s, which lasted one year.
For some economists, the Bank of Canada's predictions appear overly optimistic.
"There's significant room for the Bank to be disappointed by the coming data, which may yet prompt further [monetary policy] easing," said Benjamin Reitzes, an economist at BMO Capital Markets.
James Marple, an economist at TD Financial Group, had similar reservations and said the Bank would likely need to cut interest rates to 0.5% when it next meets in March, and keep rates low right into 2010.
"In our view, the recovery in the Canadian economy is likely to be more protracted and the growth rebound will not likely be quite as robust in 2010," Mr. Marple said.
Mr. Carney said the quick recovery was expected because Canada entered the recession with lower unemployment and a stronger fiscal position than in previous years.
He said the Bank of Canada's interest rate cuts, which have lopped 3.5 percentage points from the key rate since December, 2007, would also be "very stimulative."
On Tuesday, the central bank cut the benchmark interest rate by half a percentage point to 1%.
He said the federal government's 2009 budget, due on Tuesday, would also stimulate consumption and investment. "We do expect a substantial fiscal package in Canada," he said.
Economists agreed with the Bank of Canada that many Canadians would continue to grapple with unemployment throughout 2009. Mr. Carney said the economy would begin to recover before the job market because it would take some time for businesses to build up new orders, use excess inventories and regain the confidence to hire again.
"People are going to lose their jobs, the unemployment rate is going to rise, and it is going to take longer to find a job in that situation, whether you want to change jobs or whether you've lost your job and you want to return to work."
Mr. Carney would not estimate a peak for the unemployment rate, but said it would not be as high as in the early 1990s' recession. The unemployment rate, which rose to 6.6% as of December, reached 11.4% in 1993, Statistics Canada figures show.
