- 21May
Canada is working: Carney praises economy, but warns against relying on consumer debt to stoke growth
If Mark Carney was to write Canada’s economic legacy during his time as the country’s top banker, it would likely be one of sound monetary policy, a resilient financial system and a monetary union “that works.”In his final speech as Bank of Canada governor, Mr. Carney said Tuesday that “relative to our peers, Canada is working.”“For us, the financial crisis was an external rather than internal shock. When Canadian policy-makers responded quickly and forcefully, our financial system channeled credit to where it was needed and our economy adjusted smartly,” he told the Montreal Board of Trade."Relative to our peers, Canada is working"“In the immediate aftermath of the crisis, the broad economic strategy in Canada has been to grow domestic demand and to encourage Canadian business to retool and reorient to the new global economy.“Stimulative monetary and fiscal policies provide higher effective in supporting robust growth in domestic demand, particularly household expenditures, which grew to record levels.”But the question now is: Will he be able to carry that success that across the Atlantic?Mr. Carney leaves the bank of Canada on June 1 — two years shy of his seven-year term — to take over from Mervyn King as the U.K.’s central bank chief on July 1.Mr. King offered some advice to his successor on the weekend will need to work in a new team environment.“He will work with the rest of the monetary policy committee. It’s not a one-man show,” Mr. King said in an interview Sunday with Britain’s Sky News television network.“There is a very strong team of people here in the Bank of England which I have built up over 20 years.”Mr. Carney was chosen for the job by George Osborne — the U.K.’s chancellor of the exchequer, the equivalent to Canada’s finance minister. He has reportedly asked the new governor consider the use of more specific guidance on interest rates.The U.S. Federal Reserve has adopted a similar system in which borrowing costs would move when specific unemployment or inflation levels are reached.Mr. Carney had already used a similar policy coming out of the financial crisis in 2009 when the Bank of Canada cut its key rate to a record low of 25 basis points and provided so-called “conditional guidance” on rates over an extended period of time.“What none of us can know, of course, is what the right decisions will be down the road,” Mr. King said in the Sky News interview.“They will have to made month-by-month, according to how the economy develops.”Indeed, since the crisis the Bank of Canada’s central bank’s trendsetting rate has only risen to 1%, where it has sat since September 2010.Given the global economic and fiscal uncertainty, and Canada’s own modest growth since the second half of last year, most economists have ruled out any change in rates until mid-2014 or longer. Mr. Carney will oversee his last rate decision at the BoC on May 29."The challenge for Canada is to rotate the sources of growth toward net exports and business investment"But, returning to familiar themes during the latter part of his term, Mr. Carney warned Tuesday that Canada cannot continue to rely on household spending to lift the economy.“Domestic demand, which pulled Canada out of the recession, is now slowing,” he said.“The contribution of direct government expenditures should be modest for some time, consistent with the ongoing need to consolidate budgetary positions. Thus, the challenge for Canada is to rotate the sources of growth toward net exports and business investment.”Mr. Carney’s prodding has not yet resulted in any noticeable increase in investments and expanded export markets by companies — a situation he has likened to “dead money” sitting unused by businesses.“Exports are currently more than $130-billion less than they would have been had this been a ‘typical’ postwar recovery,” he said Tuesday.“To find and compete in new markets will require a concerted, multi-year effort by workers, firms and government.”
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Canada is working: Carney praises economy, but warns against relying on consumer debt to stoke growth
