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Canadian bank warns over US recovery

Friday 1 October 2010 - by Will Henley

Mark Carney, governor of the Bank of Canada, has voiced concerns at signs of “renewed weakness” in the US economy, warning that poor labour, housing and manufacturing figures south of the border would present challenges for Canada.

Speaking at the Windsor-Essex Regional Chamber of Commerce in Windsor, Ontario, this week, Carney noted that worldwide pessimism over the US outlook, as its fiscal stimulus comes to an end, had sharply reduced global bond yields.

He said: “In effect, there has been a Goldilocks deterioration in the macro-financial environment as major government bond yields have fallen sharply but corporate spreads have not increased.”

Carney claimed Canada’s recovery was still “relatively modest” with investment weak and productivity poor, but he contrasted its strong employment figures with weak hiring in the US. All 400,000 Canadian jobs lost in the recession have now been recovered, he said.

Warning policymakers at home and abroad against a rapid withdrawal of the monetary stimulus, he said: “If the US falters or the acceleration in Canadian business investment flags, then the pace of improvement in the labour market will be slower.”


“With risks of a renewed US slowdown, with constraints beginning to bind growth in emerging economies, and with domestic considerations that will slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered.”

Carney's speech comes as the International Labour Organisation (ILO) warns that global employment is unlikely to recover until 2015.

Carney added that the Bank of Canada was working with other major central banks to create a “more flexible, open international monetary system”.

Worldwide recovery depends upon a major rebalancing of supply and demand, he continued. “The easy bit is now over. In advanced economies, the temporary boost from the turn in the inventory cycle is largely complete. In many countries, fiscal stimulus is turning to fiscal drag. The panicked postponement of consumption and investment has been unwound.

"The question now is whether growth in advanced economies will be self-sustaining.”


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