Why is Bank of Canada's Mark Carney raining on economy's recovery parade?
Published Monday June 29th, 2009
OTTAWA - Bank of Canada governor Mark Carney has economists, and perhaps the markets, trying to read between the lines again, if not scratching their collective heads.
The youthful central banker has made three public pronouncements in the past two weeks that have surprised listeners for their foreboding tone on economic developments, particularly since Carney is widely regarded as being in the glass-half-full crowd.
But just as many economists are pointing to signs of recovery - with the World Bank a notable exception - Carney has been warning about putting too much stock in so-called "green shoots-" the now-common catch phrase used to indicate the first signs of life in a moribund economy.
In recent speeches in Montreal and Regina, the bank governor was almost dismissive of indicators of economic improvement, warning that whatever good news existed was caused artificially by massive government and central bank stimulus. The private sector "is not there yet," he cautioned.
And in a report from an off-the-record speech Tuesday at the Woodrow Wilson International Centre for Scholars in Washington, Carney broke with official Ottawa dogma in declaring Canada's recession to be as deep as that in the U.S.
Bank officials refused to confirm or deny the remark, instead pointing to Carney's last official forecast in April, which indeed has Canada's gross domestic product shrinking by three per cent this year, as opposed to 2.4 per cent for the U.S.
"Nobody expects policymakers to be cheerleaders, but do they have to be naysayers?" asked Douglas Porter, deputy chief economist with the Bank of Montreal, who is among several who wonder at Carney's transformation from Mr. Sunshine to Dr. Gloom in four months.
"The Bank of Canada is one of the few forecasters in the world that sees Canada underperforming the U.S. this year," Porter notes.
But there's more. Carney is also in an exclusive club of economic forecasters that sees Canada rebounding from the bottom at twice the rate of the U.S. next year, a prognosis he was reported have repeated last week in Washington. Most see the two economies returning to slow growth of between 1.5 and two per cent next year.
As economists will readily admit, predicting how thousands of businesses and millions of consumers will behave next month or next year is part science and part black magic, particularly in volatile times such as these when stock markets appear to fluctuate wildly on the thinnest of premises.
And Carney has bristled in the past of criticism that he is too optimistic.
"We don't do optimism; we don't do pessimism," Carney responded in February over criticism of his rosy and now discarded 3.8 per cent growth call for the Canadian economy in 2010. "We do realism at the Bank of Canada."
One explanation, says economic consultant Dale Orr, who was among Canada's leading forecasters when he worked for Global Insight, is that Carney is overcompensating for his most widely criticized forecast in January. Even former bank governor David Dodge dismissed as "unrealistic" notions that Canada would soon return to normal as if no fundamental damage had occurred.
Another, however, is that Carney is seeing dark clouds forming on the horizon and is setting the stage for yet another downward revision of his outlook.
"I think he's walking down the middle, not prepared to revise his forecast just yet but the tone is definitely shifted toward all the downside risk," said Derek Holt, vice
president of economics with Scotia Capital.
"They (bank officials) are less convinced that the domestic fundamentals are looking as rosy as they were just a few months ago."
Carney has a long way south to go before he becomes as pessimistic in the numbers as he appears to be in his tone. The Bank of Canada's 2.5 per cent growth projection for next year is at least half a point above consensus, and some see Canada growing a paltry 0.7 per cent in 2010.
Disabled
Search Articles
More CE Network Sites & Partners:
