Canada economic recovery not assured: central bank

Tue Sep 15, 2009 10:19am EDT
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OTTAWA (Reuters) - A smooth economic recovery in Canada is not yet assured, the Bank of Canada said on Tuesday, citing the strength of the Canadian dollar as one of several factors that could derail the comeback.

Deputy Governor John Murray, in slides posted on the bank's website for a presentation in Berlin, pointed out several global risks and obstacles to recovery in Canada.

In addition to "headwinds from a strong Canadian dollar," he listed uncertain sources of private demand, high levels of public debt in some countries, disorderly global adjustment and persistent troubles in the financial system.

Near-term prospects for growth and inflation look good, he said, supported by a rebound in demand for autos and housing, rising commodity prices, improved financial markets and fiscal and monetary stimulus.

He also said Canada has an advantage in carrying out an exit strategy from stimulating the economy because it has fewer extraordinary measures to unwind than many countries and has a credible fiscal and monetary policy framework.

From a global perspective, Murray said the recovery would be protracted and warned of multiple pitfalls for policymakers as they steer their economies back to growth.

Doubts remain over the timing and sustainability of a global recovery, he said, and over the effectiveness of some of the unorthodox policies implemented during the crisis.

Major economies need to coordinate on the timing of steps such as raising interest rates or withdrawing extraordinary stimulus measures such as printing money to buy bonds.

On September 10, the Bank of Canada held its key overnight rate unchanged at 0.25 percent and repeated its pledge to hold it there until the end of June next year as long as inflation stays in check.   Continued...