Bank of Canada doubts double-dip global recession

Thu Dec 17, 2009 2:42pm EST
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By Randall Palmer

OTTAWA (Reuters) - The world could head into a double-dip recession, Bank of Canada Governor Mark Carney said in an interview broadcast on Thursday, but this is not what the central bank is forecasting.

"Internationally, significant fragilities remain," Carney told Business News Network, saying the key to recovery is the handoff of economic stimulus from the public sector to the private sector.

"And at this stage we see that (handoff) more likely. Growth is becoming a little more solidly entrenched but it's not assured. And that's what we mean when we talk about fragilities," he said. "And in that context, of course there is a possibility of a double dip. But that is not our core forecast at all."

Carney said it is important for countries in the Group of 20 leading economies to start setting out reasonable exit strategies from the stimulus measures they have been taking, though it does not mean they should start implementing those strategies immediately.

Efforts to stimulate the economy will be self-defeating for countries that do not have credibility on the fiscal side, he said, warning that problems over sovereign debt could become an issue over the medium term.

Carney gave the interview on Wednesday and it was aired on Thursday.

Looking at Canada's situation, he said he judged the central bank's current plan to keep its overnight interest rate at 0.25 percent through next June to be the most appropriate. But he said that if necessary the bank could raise rates before the end of June or after.

Speaking of the mid-2010 timetable for keeping rates steady, Carney said: "We have the flexibility to adjust it, either by shortening it or lengthening it, if that's what's necessary to achieve our mandate."   Continued...