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A recession is likely, says former Bank of Canada governor



(OTTAWA) Former Bank of Canada governor Mark Carney said Thursday that a global recession was likely and it would be difficult for Canada to avoid a similar economic downturn.

In testimony before the Senate Banking, Trade and Economics Committee, Carney said Canada may fare better than others due to mitigating factors such as its ties to the states United States and its strong post-pandemic labor market recovery.

A growing number of economists predict that Canada will slide into recession as the Bank of Canada and other central banks around the world raise interest rates in an attempt to curb high inflation.

Even though inflation has slowed in recent months, the pace of price growth remains exceptionally high and well above the Bank of Canada’s target of 2.0%.

In September, Canada’s annual inflation was 6.9%.

In a statement that contrasted with her previous interventions on the economy, Deputy Prime Minister Chrystia Freeland warned Canadians this week of tough times ahead as the economy reacts to rising interest rates. higher.

“Mortgage payments will go up. Business will no longer be booming, said Mme Freeland. Our unemployment rate will no longer be at a record low. »

The Bank of Canada has raised its key interest rate five times since March, from 0.25% to 3.25%. Rate increases are fueling higher borrowing costs for Canadians and businesses, which should slow spending in the economy.

Despite raising rates at one of the fastest paces in its history, the central bank warned that interest rates would have to rise to dampen high inflation. Observers are expecting another major hike in the key rate next Wednesday, when the Bank of Canada announces its next decision on this matter.

Mr. Carney praised the Bank of Canada for “acting intelligently and aggressively to tighten interest rates.”

In response to a question about the causes of high inflation in Canada, Carney said it was first triggered by global circumstances, but has since morphed into a national problem.

The former governor, who also served as head of the Bank of England, explained that rising commodity prices and supply chain issues fueled inflation during the pandemic, but since then , inflation had spread to more sectors of the economy.

Mr Carney argued that while the pandemic support measures were necessary when COVID-19 hit, they nevertheless lasted too long and fueled inflation.

“In hindsight — and everything always seems clear afterwards — that help may have lasted a little longer than was strictly necessary,” Mr. Carney observed.

Mr Carney argued that the current economic situation necessitated budget cuts, although targeted aid was still appropriate.

“Now is the time to reduce deficits, in my opinion, not to increase them. »

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