(CP)
Friday, May 2, 2008

OTTAWA—The Bank of Canada moved to put a halt to growing speculation about a recession yesterday, saying the country’s considerable strengths will buffer the economy from the current “shocks.”
Governor Mark Carney and senior deputy governor Paul Jenkins both strongly suggested that fears of a recession were being overblown following Wednesday’s Statistics Canada report that showed the economy contracted by 0.2 percent in February.

“There needs to be a lot of perspective here,” Carney said.
He noted average annual growth for the Canadian economy over the past 15 years has been 3.3 percent and said there will be growth again this year, albeit at a slower pace.
“We’re talking about a slowing rate of growth in the first half of the year [2008] and then a recovering rate of growth,” Carney said. “There have been big shocks, but there’s a lot of strength in the Canadian economy.”
Several economists interpreted Wednesday’s report on gross domestic product as a signal the economy is edging perilously close to recessionary levels and that Ontario could already be in recession—defined as two contracting quarters in a row.
The GDP report also became a hot political topic, with the opposition in Ottawa continuing to hammer the minority Conservative government’s policies.
“Yesterday we learned that the Canadian economy is now in official decline,” NDP leader Jack Layton told the Commons on Thursday. “The fact is the economic agenda of the government is unbalanced, unsustainable, and it is leaving working families behind.”
Finance minister Jim Flaherty has taken credit for anticipating the slump and putting in place a package of stimulative business and consumer tax cuts, some of which started taking effect in January.
But University of Toronto economics professor Peter Dungan said he does not believe that talking the economy up or down will have any real impact on whether Canadians have confidence and continue to spend.
“Still, I agree there’s no need to panic,” he added. “Our view is more pessimistic but it’s not the Great Depression.
“We can argue about exactly what the forecast will be, but it’s not going to be a recession like in the early ’90s or early ’80s, if there is one at all.”
Testifying before the Senate committee and later at a news conference, Carney and Jenkins acknowledged that some sectors—particularly manufacturing and forestry—were being hit hard by the U.S. slowdown.
Jenkins said the bank was concerned about the two-economies problem in Canada, since manufacturing represents about 16 percent of the Canadian economy and is concentrated in Ontario and Quebec.
But they stressed Canada’s strong employment record and robust oil, minerals, and agricultural sectors, buttressed by high commodity prices, will keep domestic demand strong and overcome the weakness in manufactured exports.