Flaherty sees hopeful signs

OTTAWA — Finance Minister Jim Flaherty says he sees some encouraging signs of recovery in the economy, but warns that unemployment will continue strike Canadians hard this year.

OTTAWA — Finance Minister Jim Flaherty says he sees some encouraging signs of recovery in the economy, but warns that unemployment will continue strike Canadians hard this year.

“I think we are seeing some small encouraging signs, signs of more confidence, an improvement in the bond markets, some improvement in capital markets, some more confidence overall in the economy,” he said Wednesday.

“But having said that, we are going to see significant unemployment, we are seeing significant unemployment. That’s one of the very regrettable things about employment losses is that they tend to sharply go off and then take a gradual return.”

Canada lost 357,000 jobs in the past five months and could lose over 600,000 jobs in total by the year’s end, forecasters say.

Meanwhile, the Bank of Canada, which on Tuesday cut short-term interest rates to the bone, is preparing to unveil options for dramatically increasing its already aggressive intervention into credit markets on Thursday.

The central bank has said little about what it plans to do, but set the stage for heading into uncharted waters Tuesday when it dramatically changed its view on the severity of the downturn.

After predicting in January output would decline by 1.2 per cent this year, the central bank now says the stumble will set the economy back by three per cent, almost triple as much. And the recovery will be delayed and more muted, it added.

On Wednesday, the International Monetary Fund offered a similar assessment. Canada’s economy will shrink by 2.5 per cent this year and only grow 1.2 per cent next, the think tank said, calling the world recession the “the most severe” since the Second World War.

Bank governor Mark Carney may have no choice but to move to so-called quantitative easing — printing more money to ease credit — since he has done all he can on traditional policy by taking the overnight rate to the lowest practical level of 0.25 per cent.

The bank’s announcement Tuesday that it will ensure $3 billion in reserves, giving chartered banks more leeway to lend, “is a pretty clear signal they’ll go quantitative easing tomorrow (Thursday),” said Derek Holt of Scotia Capital Markets.

“That’s signalling they are no longer going to be focused on sterilizing anything they do in the market.”

The options for the central bank range from very modest, to the kind of aggressive action already put in place in the United States, the United Kingdom and Japan, where wide swaths of assets were purchased by the central banks.

The bank’s options include printing new money to buy up Government of Canada bonds, or entering niche credit markets, such as the stalled asset-backed commercial paper, auto leasing and credit card receivables.

“The objective of doing that is to increase the liquidity in the market to not only get the short-term rate down, but some of the key medium and longer-term interest rates down as well,” explained TD Bank chief economist Don Drummond.

“If they buy corporate bonds, that could get corporate bond rates lower as well.”

Any measure in that direction would be entering into uncharted waters for the staid Bank of Canada. Such unorthodox measures are normally associated with developing nations, noted Holt, adding that the behaviour would likely solicit condemnation from the IMF.

But the establishment views of what is acceptable monetary policy have changed dramatically since the global economy and financial markets began unravelling last year.

“We’re dealing with the total collapse of money creation channels in the core banking system and the absolute collapse of the shadow banking system that had become so dominant in the past 20 years in the U.S., Europe and Japan,” Holt said.

“In that context, these very different policies are filling the void.”

In one sense, the central bank already moved into a mild form of quantitative easing with two measures introduced Tuesday.

Along with taking the overnight policy rate to 0.25 per cent, in essence zero, governor Carney announced the bank’s liquidity instrument — purchase and resale agreements — by which it pumps money into the chartered banks would be extended out to as much as a year.

And it increased its daily reserves from $25 million to as much as $3 billion in a nod to banks their short-term loans will be covered.

Even the central bank’s near-guarantee that it will keep the overnight rate at the floor of 0.25 per cent for a full year is designed to give lenders assurance to increase credit.

Bank of Montreal economist Michael Gregory says the central bank may follow up with similar modest measures, or take more unorthodox action if they perceive credit remains a major restraint on the economy.

“The best way to think of this is, what they want to do is keep lowering interests rates, but they can’t lower the overnight rate anymore, so they have to do other measures. They’ve done the easy stuff, now we’ll see the harder stuff, the stuff that needs a little more explaining down the road.”

But Carney doesn’t appear to be worried about inflation down the road. His current view is that inflation is heading south and won’t return to the desirable two-per-cent target until late 2011.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a clinic in Toronto on Thursday, January 7, 2021. THE CANADIAN PRESS/Nathan Denette
Alberta vaccine rollout expanding to front-line health-care workers

More than 240,000 eligible health-care workers can begin booking vaccine appointments starting… Continue reading

File photo
The Red Deer Rebels will have three new assistant coaches when the WHL regular season starts on Friday. Brad Flynn (left), will be on the bench alongside fellow assistant Ryan Colville (right) head coach Brent Sutter (middle). (Photo by BYRON HACKETT/Advocate Staff)
Sutter steps down as Red Deer Rebels head coach

Red Deer Rebels Owner, GM and head coach Brent Sutter has stepped… Continue reading

Premier Jason Kenney announced $200 million more money that will benefit seniors living in continuing care on Wednesday. (photography by Chris Schwarz/Government of Alberta)
Alberta’s in-school rapid screening test program expanding

Alberta’s in-school rapid screening test program will expand to as many as… Continue reading

Parents and students learned Tuesday what the coming school year will look like. It's pretty much back to business as usual, said Education Minister Adriana LaGrange. School precautions include frequent cleaning, keeping students in the same groups where possible, planning the school day to allow for physical distancing and staying home when sick. (photography by Chris Schwarz/Government of Alberta)
Alberta’s largest school board says no to United Conservative draft school curriculum

CALGARY — Alberta’s largest school board says it will not use the… Continue reading

Red Deer-South MLA Jason Stephan is among those who have signed an open letter criticizing the government’s return to stricter health measures. (Advocate file photo).
Updated: Kenney tells UCP caucus COVID-19 dissent OK, breaking health rules means expulsion

15 MLAs released letter on Wednesday critical of new health restrictions

Prime Minister Justin Trudeau watches a speaker appear by videoconference during a news conference in Ottawa, Friday, April 9, 2021. Grassroots Liberals have overwhelmingly endorsed a resolution calling on the federal government to develop and implement a universal basic income — despite Prime Minister Justin Trudeau's apparent lack of enthusiasm for the idea. THE CANADIAN PRESS/Adrian Wyld
Trudeau winds up Liberal convention with election campaign-style speech

OTTAWA — Justin Trudeau wound up a three-day Liberal convention Saturday with… Continue reading

Team Canada skip Brendan Bottcher makes a shot against Italy at the Men's World Curling Championships in Calgary, Alta., Tuesday, April 6, 2021.THE CANADIAN PRESS/Jeff McIntosh
Men’s world curling championship in Calgary in COVID limbo

CALGARY — The men’s world curling championship in Calgary remained suspended Saturday… Continue reading

Pipes intended for construction of the Keystone XL pipeline are shown in Gascoyne, N.D. on Wednesday April 22, 2015. THE CANADIAN PRESS/Alex Panetta
Non-profit Quebec law centre to aid environmental group targeted by Alberta oil firm

QUEBEC — The Quebec Environmental Law Centre is coming to the aid… Continue reading

Conservative leader Erin O'Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. Top Tory leaders of past and present will speak with supporters today about what a conservative economic recovery from COVID-19 could look like. THE CANADIAN PRESS/Sean Kilpatrick
Conservatives cite empathy, relationships as ways to help expand their movement

OTTAWA — Conservatives should show empathy with Black residents who say they’ve… Continue reading

NDP Leader John Horgan celebrates his election win in the British Columbia provincial election in downtown Vancouver, B.C., Saturday, Oct. 24, 2020. New Democrats are reconvening for the second day of a three-day policy convention as they look to push past the glitches of the virtual event's opening sessions and rally around keynote speaker John Horgan. THE CANADIAN PRESS/Jonathan Hayward
New Democrats reconvene as hiccups, frustrations plague national policy convention

OTTAWA — New Democrats reconvened Saturday for the second day of a… Continue reading

FILE - In this Monday, Oct. 23, 2017 file photo, President Donald Trump speaks during a joint statement with Singapore's Prime Minister Lee Hsien Loong in the Rose Garden of the White House in Washington. Former President Donald Trump plans to affirm his commitment to the Republican Party — and raise the possibility that someone else will be the GOP's next presidential nominee — in a closed-door speech to donors Saturday night, April 10, 2021. (AP Photo/Evan Vucci, File)
Trump in 2024? He says only that ‘a Republican’ will win

PALM BEACH, Fla. — Former President Donald Trump plans to affirm his… Continue reading

A cruise ship sits docked waiting for passengers to be evacuated in Kingstown, on the eastern Caribbean island of St. Vincent, Friday, April 9, 2021 due to the eruption of La Soufriere volcano. (AP Photo/Orvil Samuel)
Ash-covered St. Vincent braces for more volcanic eruptions

KINGSTOWN, St. Vincent — People who ignored an initial warning to evacuate… Continue reading

Owner of 4 Point Taekwondo Kevin Mejia holds a board as organizer and martial artist Kevin Olsen breaks it in Edmonton on Friday, April 9, 2021. One hundred martial artists from around the world, will be breaking a board for an event called "Break for a Breakthrough." The idea is for martial artists to unite and re-engage with the arts because they may have drifted away or lost enthusiasm as a result of the pandemic. THE CANADIAN PRESS/Jason Franson
Break for a Breakthrough: Canadian hosts international martial arts demonstration

EDMONTON — Whether he’s breaking a wooden board, a clay tile, cement… Continue reading

Most Read