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Carney's view sure to offer clues to the road ahead

Bank of Canada Govcernor Mark Carney speaks to the media during a press conference after speaking to the Canadian Club of Toronto and Empire Club of Canada in Toronto on Wednesday, Dec. 16, 2009.

Nathan Denette/Nathan Denette/The Canadian Press

Next to Friday's inflation report, which could be key in determining whether interest rates rise at the end of May, the biggest event on this week's economic calendar is a luncheon speech by Mark Carney at Ottawa's spanking-new convention centre.

In a May 6 interview with CNBC, the Bank of Canada chief reiterated the main themes from his mid-April forecast, namely that the economy faces headwinds from the loonie's effect on exports, companies' halting efforts to improve their competitiveness, the winding down of stimulus spending, uneven U.S. demand, and supply-chain disruptions linked to Japan's earthquake.

All told, that means the economy is gearing down. While it likely grew at about a 4-per-cent annual pace in the first three months of the year, growth will probably slow to about half that rate in the current quarter and average somewhere between 2 and 2.5 per cent going forward.

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It's highly unlikely Mr. Carney's domestic outlook has changed in a week, so don't expect much news on that front. But that doesn't mean his speech, titled "Canada in a Multi-Polar World," or the press conference that follows it, will be dull.

Mr. Carney has been one of the most relentless and articulate voices pushing governments and central bankers from major economies to keep their eyes on the ball and ensure that lingering imbalances in growth around the world aren't allowed to fester and fuel another economic crisis.

His speech comes a few days before he heads to Washington for a meeting of the Bretton Woods Committee, which will help advise multilateral institutions like the Group of 20 as they fashion a global monetary system that's more suited to today's economic order - in which emerging giants like China, India and Brazil account for roughly 75 per cent of economic activity and the United States, Europe and Japan are shrinking in influence.

The durability of that multi-speed global recovery has massive, long-term implications for a mid-sized, open economy like Canada's, beyond the obvious need for exporters to push aggressively into new markets and reduce their reliance on the United States.

In late March, Mr. Carney told the Inter-American Development Bank's annual conference that the rebound could be in trouble if too many policy-makers in emerging nations try to restrict the flow of capital into their economies or continue to restrain their currencies. The flip side of what Mr. Carney has termed the "grand bargain" needed to achieve a more sustainable global economy is that governments and households in advanced economies must stay committed to repairing their balance sheets after decades of overspending - and to making the world financial system more resilient to economic shocks.

With the International Monetary Fund warning last week that rapidly growing Latin American nations are not doing enough to keep their economies from overheating, and urging Europe to prod banks to bolster their finances amid that continent's ongoing debt crisis, Mr. Carney's speech is timely.

No, there probably won't be a clear hint about when he'll raise borrowing costs.

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But these days, Mr. Carney's latest thinking on how the global risks he's been citing for months are actually playing out, and what they mean for Canada, will be just as newsworthy.

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About the Author
Economics/business writer

Jeremy has covered Canadian and international economics at The Globe and Mail since late 2009. More

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