Forex Blog

October 26, 2011

Finance Minister Says No Recession Likely for Canada

Canadian Finance Minister Jim Flaherty told a press conference on Tuesday that despite uncertainty in the Eurozone and a slowing U.S. economy, he expects Canada will remain resistant to recession. Nevertheless, the Finance Minister noted that he is prepared to act if necessary noting that the government will consider further stimulus spending if conditions warrant.

Despite the Minister’s optimism, recent feedback shows that the Canadian economy is slowing with a more modest level of growth now expected in the coming months. Acknowledging the revised outlook, the Minister noted that the government will keep close tabs on the situation and is prepared, if necessary, to provide stimulus as was done during the previous recession.

Comments from Bank of Canada

On the topic of stimulus spending, the Bank of Canada voted to maintain the current 1 percent overnight rate noting that “considerable stimulus” remains in the Canadian economy. This was due to previous government spending and the continuation of record-low interest rates. This comment was taken as a sign that the Bank of Canada does not intend to intervene at this point and interest rates are expected to remain unchanged well into next year.

The Bank of Canada statement did raise eyebrows, however, with a prediction that the Eurozone would likely fall back into recession next year. While the Bank expects the recession in Europe to be short-lived, the potential impact of negative growth in the Eurozone, together with a downgraded outlook for U.S. growth, were cited as potential risks to growth in Canada.

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