As fiscal crises emerge in West, Canada struggles to hold steady
September 13, 2011
Fiscal crises in Europe and the United States continue to inject uncertainty into global markets and prolong the economic recovery. While finance ministers continue to struggle with a long-term solution to the Eurozone's sovereign debt problems, the U.S. is reeling from stagnant growth and a similarly intimidating debt challenge.
But amid the chaos, Canada is trying to keep a tight rein on its relatively strong economic stance. This week, however, the scope of the challenge seemed to take a toll on the country's markets.
Citing weak growth in the U.S. and Europe, the Royal Bank of Canada scaled back its growth projections for the country, estimating its GDP will expand by 2.4 percent this year, down 0.8 percentage points from the bank's June projections.
"Financial market volatility certainly took a toll on business and consumer confidence this summer," said RBC's chief economist Craig Wright in a statement. "Our expectation that the global economy will avert another downturn, however, should temper the slide we've been seeing in the equity markets and in commodity prices."
RBC added that it expects the Bank of Canada to follow suit with the U.S. Federal Reserve in keeping interest rates low through next year. Last month, U.S. Federal Reserve Chairman Ben Bernanke announced the Fed will keep U.S. rates low for the next two years.
"The Bank of Canada is likely to maintain its key lending rate at one percent, given lower expectations about the outlook for U.S., a mild contraction in second quarter Canadian growth and benign inflation pressures," Wright added. "Policy will be geared towards supporting fragile business and consumer confidence in the near-term."
The province leading Canada's economy through the next few years, RBC argued in Monday's report, will be Saskatchewan, thanks in large part to its growing agricultural exports.
Saskatchewan's economy will grow by 4.3 percent this year and 4.1 percent in 2012, according to the bank.
Nationwide, small businesses continue to remain an integral component of the Canadian economy. However, slowdowns in the credit market and challenges to business confidence may need to be overcome to spur hiring and entrepreneurial activity.