Bank of Canada official warns against 'irrational fear' but admits there's more bad news to come
Julian Beltrame The Canadian Press
OTTAWA
Bank of Canada deputy governor Pierre Duguay is warning Canadians not to be spooked by "irrational fear'' over the economy and says there's a risk of overstating the global crisis.
"When there is a string of bad news, risk can be overstated,'' Duguay said yesterday. "People hear bad news and that affects confidence and that can amplify (economic problems).''
And there will be more bad economic news coming, Duguay warned the House of Commons finance committee.
In the past few weeks, Canadians have been told that the economy contracted 3.4 per cent last quarter and lost more than 210,000 jobs in three months.
As well, announcements of future layoffs -- including Chrysler's decision Wednesday to slash 1,200 jobs in Windsor, Ont. -- have been coming almost daily.
Duguay says Canada will be hit with a string of alarming economic news in the next few months, adding it was urgent that the budget fiscal stimulus package, particularly lending provisions, be put to work in the economy as quickly as possible.
"We are going through a recession and because of fear, consumers are spending less, companies are spending less and that is antithetical to stabilizing the situation,'' Duguay said.
"It is very important to cut it (a slowdown) off at the pass, so people can see recovery is coming.''
Duguay suggested that even with the fiscal stimulus package -- $40 billion over two years -- and the central bank's policies to bring the overnight lending rate to a record low of 0.5 per cent, the Canadian economy will need help.
He said the central bank is keeping with its prediction the Canadian economy will recover in 2010 to a relatively robust 3.8 per cent advance.
However, he said the bounceback will be both delayed and weaker if international efforts to stabilize the global financial system are not timely, bold and well-executed.
One of the advantages Canada enjoys, said Duguay, is a relatively healthy and functioning banking system that is the envy of the world.
The latest figures show total household credit in January rising 9.6 per cent over last year and limited deceleration of business credit, he said.
"Accelerating growth in bank lending has helped to offset a contraction in market financing,'' Duguay said.
