Bank of Canada Governor Mark Carney is expected to confirm the obvious Friday when he speaks for the first time in almost a month: Canada’s economy is slowing down.
A lot has happened since July 20, the last time Mr. Carney spoke publicly. Then, on the heels of his latest economic forecast, he said Canada’s recovery was picking up steam.
In the weeks since, Washington narrowly escaped a debt-limit crisis, markets fluctuated wildly over European debt squabbles and the U.S. Federal Reserve promised low interest rates through to 2013 shortly after Standard & Poor’s downgraded the U.S.’s AAA credit rating.
This rush of negative economic news is the reason why MPs on the House of Commons finance committee have scheduled a special meeting Friday in Ottawa to hear from Mr. Carney and Finance Minister Jim Flaherty on what all these developments mean for Canada.
Opposition MPs also wanted to hear from independent economists, but that proposal was voted down by Conservative MPs so as not to “worry Canadians.”
It’s unusual for the finance committee to call the minister and governor during a summer recess, so there is no real precedent as to whether private-sector economists should also be on the bill. Mr. Flaherty’s office noted the committee will have plenty of time to hear from economists during its fall pre-budget hearings.
Several private-sector economists said Tuesday they aren’t bothered by the snub. They expressed confidence that Mr. Carney’s comments are likely to be in line with what they would have said: Economic growth has slowed considerably this year and interest rate hikes – once expected this fall – will likely have to be put off.
“I think he will reinforce this notion of lower [interest rates] for longer,” said Derek Burleton, TD Bank’s deputy chief economist. Mr. Burleton said he would expect Mr. Carney to remind Canadians that with low U.S. interest rates through to 2013, there is a limit as to how high Canadian rates can go.
CIBC chief economist Avery Shenfeld said markets are already expecting Canada to delay any additional rate hikes – and predicted Mr. Carney’s comments Friday will “validate” that assessment.
Mr. Shenfeld, who is one of the private-sector economists who regularly provides Finance Canada with growth projections that underpin the federal government’s numbers, says it’s too early to say whether slower growth is creating a big risk to Mr. Flaherty’s 2011 budget numbers.
The minister does not have to release a formal update to growth and deficit projections until the fall economic update and no date has been set for that report.
NDP finance critic Peggy Nash, who requested the meeting, said she still hopes Mr. Flaherty will be able to give MPs a sense as to how recent economic news is affecting Ottawa’s bottom line.
Ms. Nash faced stiff resistance Monday evening when she pushed at finance committee to have a panel of private-sector economists appear Friday, in addition to Mr. Flaherty and Mr. Carney.
“It’s imperative, in my opinion, that we not do anything that might worry Canadians,” explained Conservative MP Shelly Glover, Mr. Flaherty’s parliamentary secretary, in rejecting Ms. Nash’s motion. “I think that hearing from the Minister of Finance and the Bank of Canada will help to reassure them, as they should be, that there is concern, but that we are proceeding, as parliamentarians, in their interests.”
Conservative MP Randy Hoback suggested the comments from Mr. Flaherty will be more reliable than what independent economists have to say.
“I want to make sure that we don’t have people coming into this meeting and start speculating and start giving their opinions and their impressions which are based on what? A crystal ball?” he told MPs. “I think it’s better that we stick to the facts and I think the two people who can provide the best facts are the Finance Minister and the Bank of Canada.”
Liberal finance critic Scott Brison accused the Conservatives of wanting to turn Friday’s meeting into “a propaganda exercise.”
Private-sector economists untroubled at being left out of finance committee meeting Friday
The Globe and Mail spoke with several private-sector economists Tuesday to find out what they would have said had they been invited to testify Friday at the finance committee.
Derek Burleton, deputy chief economist, TD Bank
“I think statements Friday will be more dovish than what we heard the last time the Bank of Canada released their interest rate decision monetary policy report in July.
“There is pressure on the minister to release an economic update early. I do think they should wait. At least get the second-quarter numbers out for Canada, allow private-sector economists to review their forecasts. ... Things can change very quickly. I wouldn’t move too hastily on this. We need to see how events unfold in financial markets. At least give it a bit more time to get a sense for how it’s impacting confidence in Canada.”
Mary Webb, senior economist, Bank of Nova Scotia
“A lot has happened since [Mr. Carney’s last update in July]. ... We’ve significantly lowered our projected U.S. growth and also edged down our Canadian growth.
“Is the whole tone of the entire G7 reassessing with a slower growth outlook? Yes. And also with a focus now on sovereign credit [ratings] and fiscal repair.”
Glen Hodgson, chief economist, Conference Board of Canada
“I generally agree with everything the minister has said over the last week or so ... Canada is not an island. We’re clearly affected by global forces ... but at the same time there’s limits as to what you can do at the macro-policy level.
“We think the feds can – and should – balance in 2014-15 [as planned].
“The likelihood is we’ll have slower growth... but we’re not talking about a second dip, we’re not talking about a recession.”
Avery Shenfeld, chief economist, CIBC
“I think [Mr. Carney] will provide a reasonable answer that won’t differ too much from what other economists might be saying.
“Financial markets will be listening carefully for the extent to which the Bank of Canada has, like other economists, downgraded at least the near-term outlook for the Canadian economy.
“The Canadian second quarter has been much weaker than anyone would have thought at the time [federal budget numbers were compiled in March.]
“It’s too early to judge whether there’s a big risk to these numbers and as well, to some extent, it’s too early to draw a conclusion as to whether or not you might want to adjust the path of planned deficit reduction.”
- Bill Curry, Ottawa