OTTAWA - Is the next move for Mark Carney to cut interest rates?

The question would have seemed unthinkable a few weeks ago given that the Bank of Canada governor's last pronouncement on the subject was to issue a wink and a nudge about coming hikes.

The signal-sending language — "some modest withdrawal of the present considerable monetary policy surplus may be appropriate" — contained in the April interest-setting statement sent markets into speculation hyper-drive that rates could be heading north as early as the summer.

Tuesday's upcoming announcement was never in play and isn't in play now. Economists are as unanimous as can be that Carney will keep the policy rate moored at one per cent a little while longer.

But now the speculation has turned full circle about the nature of the next move, whenever it comes.

"The state of the world is increasingly making clear that a rate hike at this point would be premature," said Avery Shenfeld, chief economist with CIBC World Markets.

"In fact, the OIS futures market today (Friday) started pricing in a rate cut for later this year."

Of course, the speculation on when Carney was going to start tightening policy began cooling long before Friday.

The revived crisis in Greece, which increasingly looks unsolvable short of insolvency, the growing banking crisis in Spain, unresolved debt problems in Italy and Portugal, had already lengthened the odds on Carney moving this fall, and likely made him regret his April assessment that Europe's crisis had moved from "the acute to the chronic."

But if there was any doubt remaining, Friday's onslaught of weak and very weak data from Canada, the United States, China and Brazil, following a bad output number out of India Thursday, removed it.

Friday's report on Canadian gross domestic product did not show the economy tanking in the first quarter, but at 1.9 per cent growth it was well below the central bank's April call for a 2.5 per cent advance. It now looks unlikely the bank's equally optimistic 2.5 per cent for the second quarter will come to fruition either.

And given the Canadian export sector's reliance on flush U.S. consumers, the miserly gain of 69,000 jobs reported south of the border for May was even a worse signal that the next few months will yield at best craw-speed momentum. China and Brazil also reported soft economic data.

The two disappointing North American reports all but wipe out the good memories of Canada's record-breaking 140,000 job gains in March and April. Analysts expect May will pour cold water on the employment front when the number is released next Friday.

TD Bank economist Diana Petramala isn't giving up altogether on a rate hike, however, although she is hedging her bet.

In a note to clients, she noted that if growth maintains a two-per-cent pace throughout 2012, "the argument for some withdrawal of monetary stimulus by the fall still holds. However, a continued deterioration in global financial markets could keep the central bank on the sidelines."

Even with the caveat, that is a minority view.

Capital Economics' David Madani thinks 2014 is more likely and Derek Holt, vice president of economics with Scotiabank, is coming around to the view.

Carney's previous signal on interests rates was predicated on the assumption that Canada's growth rate would smoothly expand at about 2.5 per cent throughout 2012, enabling the economy to return to full capacity in the first half of 2013.

At sub-two per cent, however, the output gap is actually widening slightly rather than closing, so the argument for tightening rates evaporates, especially since inflation remains tame.

As well, hiking rates raises the cost of borrowing for consumers and businesses, dampening economic activity, while pushing up the Canadian dollar, which depresses exports, analysts note.

The only positive would be to help slow down the housing market, which all indicators suggest is already cooling with the rare exception of Toronto condo sector.

"I buy that in a perfect world, the bank would love to raise interest rates," said Holt.

"But the growth profile continues to underperform the speed limit of the economy so you still get building economic slack that the Bank of Canada did not anticipate," explained Holt. "So more slack, more geo-political concerns, that gives the bank full course to leave rates alone for a long, long time yet."

Holt said the bank's Carney will likely need to do a bit of a climb-down Tuesday. But at the next setting in July, "the April monetary policy review will have to be completely rewritten " to reflect to gloomier outlook.

Carney did get some sympathy from Jens Larsen, the Royal Bank's chief European economist, during his visit to Ottawa last week.

Larsen's job is to track developments in Europe's sovereign debt saga and said he too mistakenly judged the temperate easing on the crisis atmosphere. But then stuff happened, he said, and now he too is rueing his previous optimism.

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  • Canadian Household Debt By Region

  • 6. Atlantic Canada: $69,300

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

  • 5. Quebec: $78,900

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

  • 4. Manitoba & Saskatchewan: $84,900

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

  • 3. Ontario: $124,700

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

  • 2. British Columbia: $155,500

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

  • 1. Alberta: $157,700

    Number represents the average among those households that carry debt. Source: <a href="http://www.statcan.gc.ca/pub/75-001-x/2012002/article/11636-eng.pdf" target="_hplink">Statistics Canada</a>

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    THE 10 COUNTRIES DEEPEST IN DEBT

  • 10. United Kingdom

    <strong>Debt as a percentage of GDP:</strong> 80.9 percent <strong>General government debt:</strong> $1.99 trillion <strong>GDP per capita (PPP):</strong> $35,860 <strong>Nominal GDP:</strong> $2.46 trillion <strong>Unemployment rate:</strong> 8.4 percent <strong>Credit rating:</strong> Aaa Although the UK has one of the largest debt-to-GDP ratios among developed nations, it has managed to keep its economy relatively stable. The UK is not part of the eurozone and has its own independent central bank. The UK's independence has helped protect it from being engulfed in the European debt crisis. Government bond yields have remained low. The country also has retained its Aaa credit rating, reflecting its secure financial standing. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 9. Germany

    <strong>Debt as a percentage of GDP:</strong> 81.8 percent <strong>General government debt:</strong> $2.79 trillion <strong>GDP per capita (PPP):</strong> $37,591 <strong>Nominal GDP:</strong> $3.56 trillion <strong>Unemployment rate:</strong> 5.5 percent <strong>Credit rating:</strong> Aaa As the largest economy and financial stronghold of the EU, Germany has the most interest in maintaining debt stability for itself and the entire eurozone. In 2010, when Greece was on the verge of defaulting on its debt, the IMF and EU were forced to implement a 45 billion euro bailout package. A good portion of the bill was footed by Germany. The country has a perfect credit rating and an unemployment rate of just 5.5 percent, one of the lowest in Europe. Despite its relatively strong economy, Germany will have one of the largest debt-to-GDP ratios among developed nations of 81.8 percent, according to Moody's projections. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 8. France

    <strong>Debt as a percentage of GDP:</strong> 85.4 percent <strong>General government debt:</strong> $2.26 trillion <strong>GDP per capita (PPP):</strong> $33,820 <strong>Nominal GDP:</strong> $2.76 trillion <strong>Unemployment rate:</strong> 9.9 percent <strong>Credit rating:</strong> Aaa France is the third-biggest economy in the EU, with a GDP of $2.76 trillion, just shy of the UK's $2.46 trillion. In January, after being long-considered one of the more economically stable countries, Standard & Poor's downgraded French sovereign debt from a perfect AAA to AA+. This came at the same time eight other euro nations, including Spain, Portugal and Italy, were also downgraded. S&P's action represented a serious blow to the government, which had been claiming its economy as stable as the UK's. Moody's still rates the country at Aaa, the highest rating, but changed the country's outlook to negative on Monday. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 7. United States

    <strong>Debt as a percentage of GDP:</strong> 85.5 percent <strong>General government debt:</strong> $12.8 trillion <strong>GDP per capita (PPP):</strong> $47,184 <strong>Nominal GDP:</strong> $15.13 trillion <strong>Unemployment rate:</strong> 8.3 percent <strong>Credit rating:</strong> Aaa U.S. government debt in 2001 was estimated at 45.6 percent of total GDP. By 2011, after a decade of increased government spending, U.S. debt was 85.5 percent of GDP. In 2001, U.S. government expenditure as a percent of GDP was 33.1 percent. By 2010, is was 39.1 percent. In 2005, U.S. debt was $6.4 trillion. By 2011, U.S. debt has doubled to $12.8 trillion, according to Moody's estimates. While Moody's still rates the U.S. at a perfect Aaa, last August Standard & Poor's downgraded the country from AAA to AA+. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 6. Belgium

    <strong>Debt as a percentage of GDP:</strong> 97.2 percent <strong>General government debt:</strong> $479 billion <strong>GDP per capita (PPP):</strong> $37,448 <strong>Nominal GDP:</strong> $514 billion <strong>Unemployment rate:</strong> 7.2 percent <strong>Credit rating:</strong> Aa1 Belgium's public debt-to-GDP ratio peaked in 1993 at about 135 percent, but was subsequently reduced to about 84 percent by 2007. In just four years, the ratio has risen to nearly 95 percent. In December 2011, Moody's downgraded Belgium's local and foreign currency government bonds from Aa1 to Aa3. In its explanation of the downgrade, the rating agency cited "the growing risk to economic growth created by the need for tax hikes or spending cuts." In January of this year, the country was forced to make about $1.3 billion in spending cuts, according to The Financial Times, to avoid failing "to meet new European Union fiscal rules designed to prevent a repeat of the eurozone debt crisis." <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 5. Portugal

    <strong>Debt as a percentage of GDP:</strong> 101.6 percent <strong>General government debt:</strong> $257 billion <strong>GDP per capita (PPP):</strong> $25,575 <strong>Nominal GDP:</strong> $239 billion <strong>Unemployment rate:</strong> 13.6 percent <strong>Credit rating:</strong> Ba3 Portugal suffered greatly from the global recession -- more than many other countries -- partly because of its low GDP per capita. In 2011, the country received a $104 billion bailout from the EU and the IMF due to its large budget deficit and growing public debt. The Portuguese government now "plans to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to 4.5 percent in 2012 and to the EU ceiling of 3 percent in 2013," according Business Week. The country's debt was downgraded to junk status by Moody's in July 2011 and downgraded again to Ba3 on Monday. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 4. Ireland

    <strong>Debt as a percentage of GDP:</strong> 108.1 percent <strong>General government debt:</strong> $225 billion <strong>GDP per capita (PPP):</strong> $39,727 <strong>Nominal GDP:</strong> $217 billion <strong>Unemployment rate:</strong> 14.5 percent <strong>Credit rating:</strong> Ba1 Ireland was once the healthiest economy in the EU. In the early 2000s, it had the lowest unemployment rate of any developed industrial country. During that time, nominal GDP was growing at an average rate of roughly 10 percent each year. However, when the global economic recession hit, Ireland's economy began contracting rapidly. In 2006, the Irish government had a budget surplus of 2.9 percent of GDP. In 2010, it accrued a staggering deficit of 32.4 percent of GDP. Since 2001, Ireland's debt has increased more than 500 percent. Moody's estimates that the country's general government debt was $224 billion, well more than its GDP of $216 billion. Moody's rates Ireland's sovereign debt at Ba1, or junk status. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 3. Italy

    <strong>Debt as a percentage of GDP:</strong> 120.5 percent <strong>General government debt:</strong> $2.54 trillion <strong>GDP per capita (PPP):</strong> $31,555 <strong>Nominal GDP:</strong> $2.2 trillion <strong>Unemployment rate:</strong> 8.9 percent <strong>Credit rating:</strong> A3 Italy's large public debt is made worse by the country's poor economic growth. In 2010, GDP grew at a sluggish 1.3 percent. This was preceded by two years of falling GDP. In December 2011, the Italian government passed an austerity package in order to lower borrowing costs. The Financial Times reports that according to consumer association Federconsumatori, the government's nearly $40 billion package of tax increases and spending cuts will cost the average household about $1,500 each year for the next three years. On Monday, Moody's downgraded Italy's credit rating to A3, from A2. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 2. Greece

    <strong>Debt as a percentage of GDP:</strong> 168.2 percent <strong>General government debt:</strong> $489 billion <strong>GDP per capita (PPP):</strong> $28,154 <strong>Nominal GDP:</strong> $303 billion <strong>Unemployment rate:</strong> 19.2 percent <strong>Credit rating:</strong> Ca Greece became the poster child of the European financial crisis in 2009 and 2010. After it was bailed out by the rest of the EU and the IMF, it appeared that matters could not get any worse. Instead, Greece's economy has continued to unravel, prompting new austerity measures and talks of an even more serious default crisis. In 2010, Greece's debt as a percent of GDP was 143 percent. Last year, Moody's estimates Greece's debt increased to 163 percent of GDP. Greece would need a second bailout worth 130 billion euro -- the equivalent of roughly $172 billion -- in order to prevent the country from defaulting on its debt in March. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>

  • 1. Japan

    <strong>Debt as a percentage of GDP:</strong> 233.1 percent <strong>General government debt:</strong> $13.7 trillion <strong>GDP per capita (PPP):</strong> $33,994 <strong>Nominal GDP:</strong> $5.88 trillion <strong>Unemployment rate:</strong> 4.6 percent <strong>Credit rating:</strong> Aa3 Japan's debt-to-GDP ratio of 233.1 percent is the highest among the world's developed nations by a large margin. Despite the country's massive debt, it has managed to avoid the type of economic distress affecting nations such as Greece and Portugal. This is largely due to Japan's healthy unemployment rate and population of domestic bondholders, who consistently fund Japanese government borrowing. Japanese vice minister Fumihiko Igarashi said in a speech in November 2011 that "95 percent of Japanese government bonds have been financed domestically so far, with only 5 percent held by foreigners." Prime Minister Yoshihiko Noda has proposed the doubling of Japan's 5 percent national sales tax by 2015 to help bring down the nation's debt. <a href="http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/#ixzz1mSdyJAeo" target="_hplink">Read more at 24/7 Wall St.</a>