Bank of Canada chief sees recession risk growing

Wed Nov 19, 2008 3:53pm EST
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By David Milliken

LONDON (Reuters) - The Bank of Canada sees a greater risk of recession in Canada than it did just one month ago as the global financial crisis rips through the economy, Governor Mark Carney said on Wednesday.

In a speech in London, Carney repeated that the central bank would likely have to cut its benchmark interest rate further to keep the export-reliant economy afloat in the face of a global recession and what he called a "consumer recession" in the United States, Canada's top trading partner.

"Starting from flat growth in the first quarter of 2009 and the second quarter of 2009 ... recession is a possibility for Canada. We do see growth picking up in the second half of 2009," he said at a news conference following the speech.

In the central bank's latest outlook in October, it forecast the economy would grow 0.8 percent in the third quarter of this year before contracting 0.4 percent in the final quarter and staying flat in the first quarter of next year. Canada narrowly avoided slipping into recession in the first half of this year.

The bank also said last month it would likely need to cut its overnight lending rate further, but said the risks to its outlook were balanced.

On Wednesday, Carney shifted to an even more dovish stance.

"While domestic demand in Canada remains relatively healthy and the depreciation of the Canadian dollar will offset some of the declines in external demand, the risks to growth and inflation identified in the October Monetary Policy Report appear to have shifted to the downside," he said.


<p>Governor of the Bank of Canada Mark Carney delivers a speech before the Canada-United Kingdom Chamber of Commerce in central London November 19, 2008. The Bank of Canada sees a greater risk that economic growth and inflation will be lower than it projected just a month ago as the global financial crisis ripples through the domestic economy, Carney said on Wednesday. REUTERS/Alessia Pierdomenico</p>