BoC predicts recession will be painful, but short
Published Thursday, January 22, 2009 9:23PM EST
The Bank of Canada is predicting that the current recession, though harsh in nature, will be relatively short in duration.
The central bank said Thursday that it looks like Canada's economy will start seeing a recovery by the end of the year, after seeing some contraction during the first half.
In its most recent Monetary Policy Report, the Bank of Canada describes how the global economy has "deteriorated significantly" since the fall seeing "all major advanced economies" become tangled in recession.
In response, central banks started cutting their monetary policy rates and governments created stimulus packages to tackle the recessionary problems they faced. These "extraordinary measure taken by central banks and governments are starting to gain traction," the bank said.
As a result, the "Canadian economy is expected to recover in the second half of 2009 and to grow above potential in 2010, as policy actions begin to take hold, both in Canada and globally," the bank said.
It predicts that the Canadian economy will grow by almost four per cent in 2010.
Bank of Canada Governor Mark Carney spoke to reporters in Ottawa on Thursday morning to discuss the outlook put forward in the Monetary Policy Report.
The bank governor said "it will take some time" for Canadians to see conditions return to normal in their economy.
"In Canada, our exports are down sharply and domestic demand is shrinking as a result of declines in real incomes, household wealth and confidence," he said.
"Canada's economy is projected to contract through mid-2009 with real GDP dropping by 1.2 per cent on an average annual basis."
In the second-half of 2009, Canadians should see their economy gradually returning "to potential," he said.
The predictions of the central bank are much more optimistic than those recently offered from other private-sector economists and parliamentary budget officer Kevin Page.
Economist Craig Alexander of TD Bank told CTV Newsnet Thursday while he does agree that the worst of recession should be over within six months, he forecasts a much slower recovery than the Bank of Canada.
He said Canada's recovery is going to be tied to the United States and the rest of the global economy.
"The fact of the matter is that we are going through a significant unwinding of financial imbalances that have developed over recent years in the global financial system," Alexander said. "It's going to take a long time to basically deal with those problems."
Carney said the bank expects this recession will not last as long as the recession seen in the 1990s for several reasons, including the easing of monetary policy. A lower Canadian dollar and "extremely significant" monetary and budgetary policies have also helped, he said.
"It should be said that there is flexibility in the Canadian market and this is very important," Carney said.
"Our level of indebtedness is far less than in other countries and our budgetary wiggle room of the federal government and provincial governments is much better than before."
With files from The Canadian Press