Recent economic indicators have brought more bad news than good, Bank of Canada Governor Mark Carney said Monday, indicating disappointment with the pace of growth.
“There’s been some data that has broken to the downside” of the central bank’s forecast for near-term growth, Mr. Carney told reporters after a speech at Western University in London, Ont.
“In the very near term, more of the elements of the downside risks have materialized than the upside risks.”
Mr. Carney’s remarks could reinforce the increasingly popular view that the Bank of Canada will leave interest rates unchanged until at least early next year, a prospect that would see Canada’s benchmark lending rate locked at an ultra-low setting of 1 per cent for more than three years.
Canada’s currency has weakened in recent weeks amid an increasing number of signs the country’s economy came close to stalling at the end of 2012. Housing starts, factory shipments, exports and retail sales all declined sharply, leaving Canada to start 2013 in a deeper hole than the Bank of Canada was expecting.
Mr. Carney warned of “choppiness” in economic data as business investment takes over from household spending as the primary engine of growth.
That suggests the central bank could hold its nerve during a brief lull in economic activity as the baton is passed.
The governor also called the slowdown in household credit accumulation “intended and welcome,” as the central bank had long worried that a spike in debt to record levels risked a financial crisis.
Mr. Carney said Canada “could be on the cusp of stabilization of household credit,” as growth in debt has slowed to a pace that matches gains in income.
Now, the Canadian economy needs another source of fuel. Mr. Carney hopes that will come from business investment, and he noted a recent spike in business lending could be a positive sign.
“We have expectations of solid business investment,” he said. “We stick by those.”
Canada’s economy also will need a boost from exports to achieve the rate of growth to which the country has become accustomed.
On that, Mr. Carney is less confident. He acknowledged there is little indication that exports are gaining strength, which he said is attributable primarily to an “underlying competitiveness element.”
He disagreed with the suggestion that the Canadian dollar’s rise to parity with the U.S. dollar is the biggest factor hurting exports, reiterating that the central bank will not set policy to achieve a weaker currency.
“We don’t have a view that you depreciate yourself to prosperity,” Mr. Carney said. “Building up the productive base of the economy continues to be what is required.”