EUROPE BIGGEST THREAT TO CANADIAN ECONOMY

We know the effect of economic slowdown in Canada, and Mark Carney says that he is fairly certain of the cause as well.

In their quarterly monetary report, the Bank of Canada said that the Euro zone and the recession that they are encountering is the single biggest threat that faces the Canadian economy at the moment. And this is no idle threat either- there has been, and will continue to be, significant impact on the Canadian economy.
Carney estimates the loss in output this year will be in the range of $10 Billion.

Other countries around the world are essentially footing the bill for the financial carnage that continues to run through the troubled Euro zone. Carney puts the cost at around 0.6% of the Canadian GDP. Furthermore, the cost could mount significantly if the financial fallout is not fully contained by European leaders, who have shown a bewildering complacence.

The report says, “The outlook for the global economy has deteriorated and uncertainty has increased since October. The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen. The recession in Europe is now expected to be deeper and longer than the Bank had anticipated. The Bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks.”

At a press conference following the release of the report, Carney told reporters: “"Europe is the biggest external threat to Canada without question."
Carney went on to say that, even though Canada is essentially doing much that is right and responsible to manage the economy, these headwinds persist and continue to land impact, through no fault of a direct action or inaction domestically speaking.

While Canada does continue to feel some pain from the troubles that continue in Europe, we do suffer less than some countries like the U.S., because the Canadian exposure to the threatened European banks is limited.

With the force of these headwinds continuing to blow, the BOC does not expect the economy to return to full capacity until 2013.
“The Bank estimates that the economy grew by 2.4 per cent in 2011 and projects that it will grow by 2.0 per cent in 2012 and 2.8 per cent in 2013. While the economy appears to be operating with less slack than previously assumed, given the more modest growth profile, the economy is only anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in October.”

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