Carney changing tone

Bank of Canada governor Mark Carney has economists, and perhaps themarkets, trying to read between the lines again, if not scratchingtheir collective heads.

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 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.

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 to 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.

 
 
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