By Rose Simone, Record staff
KITCHENER – The Canadian economy will recover in 2010, but the challenge ahead is to get the private sector to take more of a lead in that growth, a Bank of Canada economic analyst said in Kitchener today.
Even though the global economy is responding to the stimulus efforts of governments and central banks, the private sector will need to take the reins eventually, said Jane Voll, a senior regional representative in the Canadian economic analysis department at the bank.
“The next thing we need to do is make the transition from policy-induced growth to private sector growth, and that will take tremendous consumer and business confidence,” she said at a Greater Kitchener Waterloo Chamber of Commerce breakfast meeting.
Voll, who is originally from Waterloo Region, said the government and central bank policies to stimulate the economy were necessary. “A year ago, we were looking at the most severe financial crisis since the Great Depression,” she added. The measures have worked, and Canada’s recovery appears to be well underway, Voll said.
Commodity prices have recovered, the housing market has improved and consumer confidence and spending is up compared to the end of last year, she said. Manufacturing shipments are starting to rise again and industries are saying they expect to increase spending on machinery and equipment in the coming year, she added.
The Bank of Canada is forecasting economic growth of three per cent in 2010 and 3.3 percent in 2011.
But there are “challenging headwinds,” such as the rise of the Canadian dollar, which could create “a downward pressure on the Canadian economy,” Voll said.
On the global front, a major concern is managing the current accounts imbalances between debtor nations and those that have trade surpluses.
“The saving countries will have to adjust their practices and the borrowing countries as well. This could happen in an orderly fashion and the economy could continue to grow, but if it happens in a disorderly fashion, it could create difficult circumstances for several economies, Canada’s included,” Voll said.
Voll said that for now it is important for the central bank to keep the overnight interest rate at its historic low because even though consumer spending is starting to come back, “there are still more deflationary pressures than inflationary pressures.”
She said analysts are looking carefully at the signals and trying to “get the timing right” for when the government can pull back and the private sector can take the reins. “There is a long road ahead but we are on the way and we are on the right track,” Voll said