mark carney : bank of canada ’ s perspective on the current state of the domestic and global economies opening statement by mr mark carney, governor of the bank of canada, to the house of commons standing committee on finance, ottawa, 10 february 2009. * * * good morning. paul and i are pleased to appear before this committee to discuss the bank of canada's perspective on the current state of the domestic and global economies. let me state at the outset that the speed and synchronized nature of the recent global downturn has resulted in a heightened degree of uncertainty, which is evident in the diverse views on the outlook. indeed, it is safe to say that the degree of uncertainty – the range of possible outcomes – is greater than the range of point forecasts. it is in this environment that considerable policy actions are being taken globally : the provision of liquidity to stabilize global financial markets, the write - down of assets and the re - capitalization of institutions, and macroeconomic policy measures to boost aggregate demand. a considered and coherent perspective on the likely success of these policies importantly shapes our view of the outlook for the global and canadian economies. global outlook – sudden, synchronized, and deep recession the outlook for the global economy has deteriorated significantly in recent months. what began last autumn as a relatively controlled slowdown has become a sudden, synchronized, and deep global recession. the proximate cause was the intensification of the global financial crisis owing to both the failures of several prominent global financial institutions and the growing realization that this was a solvency crisis rather than a liquidity crisis. the recession that originated in the united states is now spreading globally through confidence, financial, and trade channels. in the process, the inevitable correction of unsustainably large current account imbalances in several major economies is now under way. for example, we project that the u. s. current account deficit will narrow to 3 per cent of gdp in 2009, about half its size in 2006. the sustainable rebalancing of global domestic demand from deficit countries such as the united states and the united kingdom towards surplus countries such as china and germany will take some time and is likely to dampen the pace of global growth during that period. in the bank's january monetary policy report update, we projected that global economic growth will be tepid this year – just 1. 1 per cent – before rebounding mildly to a below - trend rate of 3. 7 per cent in 2010. as part

of that projection, we expect that the eventual u. s. recovery will be much slower than usual. for example, we project that it will take two and half years from the onset of the recession for u. s. gdp to return to its pre - recession level. this sluggishness reflects the lingering effects of the crisis on the u. s. financial system and the slow recovery of domestic consumption owing to the magnitude of wealth effects and the deterioration in the labour market. reflecting the seriousness of the shock, the global macroeconomic policy response has been unprecedented. in the wake of the intensification of the crisis, monetary policy rates have been substantially and rapidly reduced in most major economies. fiscal policy initiatives have also been robust, with the world well on its way to spending an average of more than 2 per cent of global gdp in discretionary fiscal measures. these measures will replace some of the lost private demand and – equally importantly – create a window for the necessary rebalancing of global growth. simultaneous fiscal action is not only more powerful than measures taken in isolation, but also has the potential to provide some support for commodity prices. given typical lags, the effects of these monetary and fiscal policies will be felt increasingly over the course of this year and 2010. canadian outlook – sharp recession and milder - than - usual recovery the global downturn and declining demand for our exports will make this a very difficult year for canada's economy. we are now in recession with gdp projected to fall by 1. 2 per cent this year. the first half of the year will be particularly challenging with sharp falls in activity and increases in unemployment. unfortunately, last friday's employment report is broadly consistent with our outlook. the 14 per cent drop in our terms of trade since july will translate into a significant reduction in canadian incomes and thus in our ability to sustain real domestic spending in the economy. losses by canadians on their financial holdings, either directly or via their pension funds, and concerns about the employment outlook will also restrain domestic consumption this year. uncertainty about the economic outlook and strained financial conditions should lead to declines in investment spending this year. in our base - case projection, real gdp is expected to rebound in 2010, growing by 3. 8 per cent. though seemingly impressive when viewed from the depths of a recession, such a recovery is actually more muted than usual. the recovery should be supported by : • the timeliness and scale of our monetary policy response ; • our relatively well -