Canada’s Performance After the Financial Crisis

"Despite the fact that Canada didn’t have a 'homegrown' financial crisis, economic recovery has been painful," said Timothy Lane, Deputy Governor of the Bank of Canada last month at Carleton University. That pain may remain with us for some time yet.

This, said Mr. Lane, was mainly because our exports collapsed as a result of the severity of the US recession. “It’s not just that about three-quarters of our exports go to the United States, but also that they are linked to sectors of the U.S. economy, such as housing and business investment, that fared particularly badly in the recession,” said Mr. Lane. In response, Canada had to continue to rely on stimulative monetary policy, longer than expected.

The reasons? “Suffice to say that weak exports have meant that Canada has had to rely on exceptional monetary policy stimulus for even longer than we expected. Our policy interest rate has stayed at 1 per cent since 2010,” he said. “In addition, the financial crisis of 2008-09 has underscored how tightly linked the U.S. and Canadian economies are – for better or for worse.”

Upcoming changes in U.S. monetary policies could, in fact, have significant impact here in Canada. “The renormalization of U.S. monetary policy will act to tighten Canadian monetary and financial conditions," said Mr. Lane. The U.S.’s planned exit from unconventional monetary policies will tend to push up market interest rates in Canada and dampen the U.S. expansion while putting downward pressure on the value of the Canadian dollar. "In the event that the Fed’s renormalization does not play out smoothly in financial markets, the impact on Canada could be significant.”

More on Canada’s economic prospects in an uncertain global environment will be discussed in detail at the Distinguished Advisor Conference, Nov. 9–12. Late registrations will be considered until the closing date of October 15 – call 1-866-953-4768 or register online. To view our full agenda and speaker lineup, click here.

Reference: Speech: "Are We There Yet? The United States and Canada After the Global Financial Crisis"; remarks Timothy Lane - Deputy Governor; Carlton University, Ottawa, Ontario; September 24, 2014.