Bank of Canada governor Mark Carney says growing access to capital should make Canadian businesses confident to invest, despite the financial chaos that has rocked Europe and troubling signals out of the United States.
"Given the relative attractiveness of Canada in global terms, Canadian businesses large and small can expect continued access to capital and that's extremely important because that allows to plan for the medium and long term," he said Wednesday after addressing a Montreal business group.
While Canadian trade with Europe remains relatively low, there are tremendous opportunities, even in a situation like Europe's debt crisis, Carney said.
Carney cautioned against overreaction by businesses during a period of international volatility.
The head of the Montreal Board of Trade said Carney's comments are reassuring to entrepreneurs who wonder if the time is right to develop their businesses and export markets.
"The worry is when they hear that in Europe investments are slowing down and the fear is a form of contagion," Michel Leblanc said in an interview.
"The answer today was reassuring that the Canadian system seems to be strong enough that Canadian businesses need not have to worry."
Carney gave no indication whether his next move might be to actually reduce the trendsetting overnight rate from the current one per cent, as at least two major economists have urged. The central bank next meets Dec. 6 to decide whether the rate will change.
"The path for interest rates in Canada will be appropriate in order to achieve the inflation target and we're not going to tie our hands on that path, because obviously we're living in volatile times," Carney told reporters.
Rebound only a temporary respite
Monetary stimulus will eventually end, but Carney said the bank will adjust to actual events as they happen.
During the speech to the Montreal Board of Trade, the central banker made clear that he sees recent indication that the economy rebounded strongly in the third quarter, and continued to perform well in October, as a temporary respite from the approaching storm.
Carney, who was pessimistic about the second half of this year when he delivered his monetary policy report in October, conceded that the tail end of 2011 will be better than he thought.
In last month's outlook, he had predicted Canadian growth would be a tepid two per cent in the third quarter, and a miserable 0.8 per cent in the fourth.
Economists now expect the third quarter, which ended in September, to come in at three per cent growth or even higher, while early indications are that the fourth will also be stronger than thought.
"Preliminary evidence suggests that economic growth in the second half of this year will be slightly stronger than the bank had projected in our October Monetary Policy report," Carney said.
He acknowledged that as recently as July, markets were expecting him to start raising the bank's trendsetting policy rate, which has been at one per cent since September 2011, given that the outlook appeared to be brightening and inflation was at or above the bank's comfort zone of between one and three per cent.
European crisis 'barely contained'
Canada has since been hit by a blast of headwinds from abroad, he said, and the future doesn't look nearly as bright.
The forecast now is for Canada's economy to muddle along with excess capacity well into 2013. He did not change his projection that the economy will grow by a modest 1.9 per cent next year, although he highlighted that risks remain high.
"In this environment, the bank judges it appropriate to maintain the considerable monetary policy stimulus in place," he said.
Analysts with Merrill Lynch and Capital Economics recently suggested the economy will slow so sharply next year that Carney will need to reduce the policy rate to half a per cent or even as low as 0.25 per cent, where it was during the recent recession.
And TD Bank chief economist Craig Alexander doesn't believe the central bank will raise rates until 2013.
"This speech makes me more comfortable with that view. He's emphasizing it's going to take considerable time before the slack in the economy is eaten up."
As for inflation, Carney said he expects that rather than staying at the top of the bank's target range — it is currently at 2.9 per cent — consumer price escalation will slow to about one per cent by mid-next year as oil and food prices moderate.
Carney is also taking a cautious view of efforts in Europe to deal with the continent's sovereign debt and banking crisis, calling the situation a "crisis ... barely contained."
He said Europe has the means and solutions but officials need to "put them in place this week not next year."