Bank of Nova Scotia sees Canadian recession

Mon Oct 6, 2008 9:24am EDT
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NEW YORK (Reuters) - Bank of Nova Scotia said on Monday Washington's $700 billion plan to rescue the troubled U.S. financial system was too late to stop Canada from slipping into recession.

"Scotia Economics is forecasting Canadian and U.S. recessions," Canada's third-largest bank said in a research note. "It's too early for the Paulson rescue package to swing into gear, but also far too late as deleveraging dominoes across more loan products and regions."

The outlook contrasts with recent comments from Canadian Prime Minister Stephen Harper, who has said he expects his country's economy to slow but does not expect it to shrink.

Harper, hanging on to a strong polling lead ahead of the October 14 Canadian federal election, has been accused by his rivals of being in denial about the economy.

"The U.S. is rather clear. For Canada, much weaker net trade is on tap and any supposed terms of trade advantage is being lost as commodities tumble," Scotiabank said.

"Further, Canada's housing market is in correction mode but without U.S. style mortgage deleveraging in the cards, real retail sales are trending down, and businesses are investing less," the bank added.

Scotiabank said it expects the Bank of Canada and the U.S. Federal Reserve to counter the recession threats with interest rate cuts of another 100 basis points.

The U.S. government enacted a landmark $700 billion bank bailout on Friday in an effort to contain a panic that began on Wall Street and spread to become a global financial crisis.

(Reporting by Richard Valdmanis; Editing by Frank McGurty)