The Bank of Canada has set the stage for direct intervention in financial markets through purchases of government and corporate bonds, declaring that Canada’s capacity to produce is taking a big hit in a severe recession.
The central bank’s long-awaited policy statement Thursday on so-called quantitative and credit easing contained no specific commitment to move into uncharted waters, and governor Mark Carney stressed this would only be done if conditions worsened, indicating no action will be taken until at least June.
The bank says Canada will begin to recover next year with a growth rate of 2.5 per cent, but in the meantime will suffer a devastating recession — deeper than in the United States. The main reason is that U.S. weakness in the housing and auto sectors is hammering Canadian export industries — vehicles, parts and forest products.
The loss of 270,000 Canadian jobs in the first quarter, combined with declining household worth, has driven down spending.
It says Canada’s economy likely contracted at a steep 7.3 per cent in the first three months this year and will shrink by three per cent this year as a whole.
