Skip to main content

The Globe and Mail

Canadian executives' gloom clouds recovery, Carney warns

Bank of Canada Governor Mark Carney listens to a question during a news conference.

CHRIS WATTIE/REUTERS

Canadian companies are retrenching as the global economy darkens, forcing Bank of Canada Governor Mark Carney to step up his efforts to block their retreat.

Mr. Carney paired the release of a dispiriting business outlook survey with a speech that sought to convince executives that the economic backdrop isn't as bad as many seem to think. His message: Tepid growth is still growth, and caution need not become paralysis.

"We must take care not to allow uncertainty to dominate our actions, letting profitable opportunities slip away and, more generally, compounding the very real, but still manageable, challenges facing the global economy," Mr. Carney said in a speech in Nanaimo, B.C.

Story continues below advertisement

Earlier in Ottawa, the Bank of Canada released its latest quarterly survey of business intentions, which showed that executives' enthusiasm for investment has diminished to its weakest since the end of 2009. , when the financial crisis was still having an effect.

The third-quarter Business Outlook Survey reported that only 37 per cent of respondents intended to boost investment plans over the next 12 months, compared with 43 per cent in July. The proportion planning to spend less on new machines, computers and buildings and the like increased to 29 per cent from 19 per cent three months ago.

"Many (mostly large) firms reported having recently completed significant projects and noted that, in the current environment, the emphasis would shift toward more intensive use of existing capital, through projects related to improving logistics and supply-chain process," the central bank said in the report.

Weaker business spending heralds lacklustre economic growth for Canada over the next year, because households and governments are expected to cut spending to ease heavy debt loads.

Mr. Carney and Finance Minister Jim Flaherty have exhorted Canadian businesses to boost spending rather than hoard record levels of cash.

Mr. Carney told reporters that the contribution of housing to Canada's gross domestic product – through heightening construction and the wealth effect of soaring home prices – has exceeded its historic average for several years and would soon revert to the norm. "We need other engines of growth, investment particularly," he said.

Companies, however, are worried about the future. The Bank of Canada survey shows that 57 per cent of respondents said sales were stagnant or declined over the previous 12 months, compared with 47 per cent in July.

Story continues below advertisement

Few expect that to change: As many companies – 35 per cent of respondents – predict sales will decline over the next year as predict revenue will increase. A third predict no change.

The International Monetary Fund last week at its annual meetings in Tokyo cut its outlook for global economic growth this year to 3.3 per cent – the slowest since the 2009 recession – from 3.5 per cent in July, and said the risks of an even faster slowdown were "alarmingly high."

Headwinds include Europe's debt crisis, which has triggered a recession, worries over whether U.S. politicians will sort out a combination of tax increases and spending cuts equal to 4 per cent of gross domestic product, and slower economic growth in China. The IMF predicts only a modest increase in economic growth of 3.6 per cent in 2013.

Mr. Carney was on his way back from the IMF gathering. He agreed that there are plenty of reasons to feel uneasy about the global economy, but he insisted on perspective.

While there is plenty of disagreement over the efficacy of the Federal Reserve's latest bond-buying program, Mr. Carney said the latest round of monetary stimulus in the United States would be "modestly positive" for Canada by stoking U.S. demand and increasing commodity prices.

He said he expects U.S. politicians will avoid the "fiscal cliff," a combination of 2013 tax increases and spending cuts that's so large it likely would trigger a recession. And Mr. Carney pointed out that the slower growth predicted for China this year still would add $800-billion to global GDP.

Story continues below advertisement

Still, Mr. Carney said policy could do more to instill confidence by explaining clearly their plans. In that spirit, Mr. Carney said for the first time that if the Bank of Canada were to opt to deflate Canada's household debt bubble by raising interest rates, he would "clearly declare" what he was doing.

"If we were to lean against emerging imbalances in household debt, we would clearly declare we are doing so and indicate how long we expect it would take for inflation to return to the 2 per cent target," he said.

Report an error Licensing Options
About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.