Financial Update

Central bank plays down recession threat

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As other countries pump cash into their credit systems, the Bank of Canada is standing on the sidelines

May 03, 2008 Julian BeltrameThe Canadian PressThe Bank of Canada sat on the sidelines yesterday as the United States and Europe stepped up efforts to loosen tight credit conditions, a further indication that Canada's top banker believes the country's economic woes were not the same as south of the border.

Bank governor Mark Carney appeared relatively upbeat about Canada's economic prospects at two appearances before parliamentary committees this week, highlighting the country's "strengths'' and describing credit conditions as superior to those in the United States and Europe.

Yesterday, the U.S. Federal Reserve acknowledged the global credit crisis was not yet over, saying it will work with European central banks on the issue and announcing a boost in the emergency reserves it supplies to U.S. banks to $150 billion US in May, up from the $100 billion it supplied in April.

But in a statement, the Canadian central bank noted that while it had rolled over $2 billion in purchase and resale agreements with Canada's chartered banks on Tuesday, it was not injecting more or new money into the system.

"The Bank of Canada has not offered the specific types of facilities covered by these central bank announcements because markets and institutions in Canada have not been affected in the same way nor to the same extent as elsewhere,'' it said in a statement.

Carney's sanguine comments this week -- no recession and no inflation -- appeared directed at countering what the central bank likely considers overly pessimistic views propagated by analysts, the media and opposition politicians, especially after Statistics Canada reported gross domestic product had contracted by 0.2 per cent in February.

Bank of Montreal's Doug Porter pointed out that Canadians have had it far better than their American cousins, and will continue to experience superior economic prospects for some time.
The number of people working in Canada is at a record 63.9 per cent, while in the U.S. it has dropped to 62.6 per cent, he said.

As well:

Retail sales are up 6.8 per cent so far this year in Canada, compared to 2.9 per cent in the U.S.
Housing starts are up 3.7 per cent in Canada, versus down 29 per cent in the United States
And Canadian auto sales are up 6.1 per cent; American sales are down 7.7 per cent this year.
Part of the despair about the economy, said Porter, is related to analysts and Canadians putting too much weight on one indicator -- real gross domestic product growth -- which has been misleading in an era of rising exports values and falling import prices.