Thursday, February 4, 2010

Bank of Canada sees thaw, warns of possible trouble

OTTAWA (Reuters) - Bank of Canada Governor Mark Carney said on Thursday the Canadian economy was looking up and should recover lost ground this year, but he warned of possible storms if China and the United States did not take tough decisions.

"My message is relatively straightforward: the thaw is coming," he said in the prepared text of a speech he was giving in Winnipeg. "The recovery has begun. After a brutal economic winter, spring is within sight."

Canada's labor market appears to have stopped bleeding, businesses expect to make modest fixed investments this year, real output should reach pre-crisis levels by the third quarter, and the private sector should be the sole contributor to Canada's domestic demand growth next year. But he still saw few signs of autonomous private demand in most advanced economies.

He said sustained growth required major fiscal consolidation in the United States and elsewhere, higher U.S. household savings, policy-induced domestic demand in China and other nations, and higher exchange rates in countries with big surpluses.

If these steps were not taken, a return to unsustainable current account imbalances or sharp disinflationary pressures at a global level could not be discounted, Carney said. (Reporting by Randall Palmer; editing by David Ljunggren)

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