TORONTO (Reuters) - Canada’s government said on Monday the economy can still avoid a recession even as the global financial crisis battered the Toronto stock market and economists warned of little growth until late next year.
Prime Minister Stephen Harper said Canada was not immune to the impact of a global economic slowdown, but it was not in a recession yet. Harper’s aides said there were no plans for a special bailout for the country’s banks.
“I remain fundamentally optimistic about the Canadian economy, but optimistic, as I’ve said from the beginning, within the framework we’re now living in, and that is in a period of economic uncertainty,” Harper told reporters.
He said he understood that investors were worried, but should not “press the panic button.”
A Bank of Nova Scotia report on Monday forecast a Canadian recession that could last well into 2009. Other economists stopped short of predicting recession, usually defined as at least two consecutive quarters of contraction, but they said the country should expect little economic growth for much of the next year.
The Toronto Stock Exchange joined in Monday’s global market retreat and posted its biggest intraday drop in two decades, falling more than 10 percent in early trading, before recouping about half its losses.
Shares on the country’s main equity market closed down more than 5 percent, led by a sharp retreat in the energy sector as oil prices tumbled over concerns of a global recession.
Worries over falling commodity prices also pushed the Canadian dollar to its weakest day since May 2007 against the rallying U.S. dollar.
The economy has become a major issue on the campaign trail, with Harper’s opponents in the Oct 14, election accusing him of doing too little to address the impact on Canada of the slowdown in the United States.
“He hasn’t done anything for the last two years and he isn’t about to start now,” New Democratic Leader Jack Layton told a rally in Vancouver.
Harper said the government had taken action before the crisis that prepared banks and the economy for the downturn, and its economic plans were well suited for a period of slow economic growth.
“I don’t think we should hit the panic button quite yet ... I know that investors are hurting but I don’t think government should make day-to-day decisions based on the stock market. I think the governments ... should be the anchor of stability when the markets gyrate all over the place,” he said in an interview on the Business News Network.
At a special economic conference in Toronto, Royal Bank of Canada Chief Economist Craig Wright said a U.S. recession is a given and a recovery will be shallow. That will continue to hurt Canadian exports -- 75 percent of which go to the United States.
“We’re not going to see a sharp snapback in growth because there is no one sector in the U.S. economy that is positioned to lead us out of this weak spot,” Wright said.
The prime minister told reporters Canada he wanted the Group of Seven industrialized countries to co-ordinate action on the financial crisis, and said Canada had plans to help its banking sector if needed.
A spokesman later clarified that did not mean Ottawa was eyeing a bailout plan. Canada’s major banks have so far avoided the dire credit problems that have hit their counterparts in the United States.
Finance Minister Jim Flaherty issued his own statement saying the global credit crunch was starting to hamper Canadian banks’ ability to raise longer-term funds but they remain well-capitalized and able to withstand big shocks.
At the Toronto conference, Doug Porter, deputy chief economist at BMO Capital Markets, said it looks as if markets are pricing in more of a hard landing for commodities, which would hurt energy producers and eventually the housing market in Western Canada.
But Porter warned that the crisis buffeting the markets also made it difficult to predict what will happen next.
“Trying to do an economic forecast in this kind of turmoil is a bit like trying to put a value on your house when the kitchen is on fire,” he said.
Reporting by David Ljunggren, Frank Pingue, Ka Yan Ng; writing by Allan Dowd; editing by Rob Wilson