OTTAWA - Bank of Canada governor Mark Carney says he is not as eager to raise interest rates as he was a few months ago, although he made clear the next move will likely be to increase rather than reduce the cost of borrowing.

The central banker made the statement Wednesday following release of the latest quarterly economic outlook and amid some confusion about Tuesday's changes to the guidance the bank issues during policy announcements.

As expected, the bank kept its policy rate at one per cent for the 17th time, but changed the language on its tightening bias to read that "over time" historically low interest rates will need to rise.

"The case for adjustment has become less imminent," Carney explained Wednesday.

But he added, "over time rates are more likely to go up than not," noting high levels of consumer debt and that the economy continues to expand.

He also asserted that despite inserting concerns about debt as a factor in setting monetary policy, it remains "the last line of defence" and that the federal government has better tools to address the problem.

"Because of global headwinds, there is a need to provide very stimulative monetary policy to encourage business investment and to encourage household borrowing," he said.

"One of the consequences, is this ... risk around household debt and the first best response is to use other instruments."

Most private sector economists don't believe Carney will take any action on rates until late 2013 or early 2014.

"This is by far the clearest communication we’ve had from the Bank of Canada over the last tumultuous nine days, and it motivated an instant drop in two-year yields and half-penny depreciation in (the) Canadian dollar," said Derek Holt, vice-president of economics with Scotia Capital. "That’s as clear a signal as any that the (bank) is more dovish with its latest statement."

The loonie, which had been up early, ended the day down 0.23 cents lower at 100.51 cents US.

Overall, Carney said he is slightly more optimistic than a few months ago about developments around the world, and some aspects of Canada's economy as well.

The housing market appears to be moderating, and so is credit growth among households, although due to lagging factors, debt-to-income is expected to keep rising from the current record 161 per cent before levelling off in 2014.

But the most significant change may be in the risks to the global economy, following aggressive actions by policy-makers in Europe and in the U.S., where the Federal Reserve introduced a third round of quantitative easing. As well, China is showing signs of arresting its growth slide and the U.S. housing market is picking up.

"Lump all of that together, the (developments) have reduced global risk and our outlook for foreign activity is quite strong," Carney said.

In the report issued earlier in the morning, the Bank of Canada said growth in the country is rebounding — if moderately — after hitting a sizable speed bump in the recently completed third quarter.

The bank estimates that Canada had its worst quarter in the recently completed July-September period since the spring of 2011, advancing only one per cent, or half the rate the bank had expected.

The main cause, the bank said, was temporary production shutdowns in the oilpatch during the summer.

But the latest outlook from the central bank predicts activity will pick up globally and in the U.S., giving Canadian exporters a boost and helping the economy bounce back to 2.5 per cent growth in the last three months of the year, followed by 2.6 per cent gains in each of the following three quarters.

"The bank expects growth in the Canadian economy to pick up in the coming quarters to a somewhat faster pace than that of its production potential," it said.

"The pick-up in growth from its trough in the third quarter of this year is expected to be driven primarily by a modest increase in net exports. This balances ongoing competitiveness challenges (high dollar) with the projected improvement in the growth of foreign activity."

On an annual basis, the bank says growth will average 2.2 per cent this year, 2.3 in 2013 and 2.4 in 2014.

However, the economy is still operating below capacity and won't be firing on all cylinders until the end of next year, it added.

Wednesday's adjustments in growth are mostly tweaks from the bank's previous projections in July, driven by historic revisions in the way the numbers are calculated by Statistics Canada earlier this month. But the overall message of the latest analysis comes off rosier in the margins than the bank's review in July.

Globally, the bank has kept its modest expectations for growth intact, but it has upgraded U.S. growth somewhat to 2.1 per cent this year rising to 3.2 in 2014. The main reason is the Fed action the bank judges will likely boost growth by 1.3 percentage points in the U.S. in 2014. A stronger U.S. economy also lifts the Canadian boat, the bank said, by about 0.4 percentage points in the same year.

Although the bank expects exports to pick up gradually, the main drivers of the Canadian economy remain consumer consumption and business investment. The public sector has practically abandoned the field in terms of a growth generator as governments move to restraint, it said, resulting in a modest drag this year and equally modest stimulus next.

The bank also expects housing activity to continue to slow, but does not anticipate a crash, noting that despite "signs of overbuilding, the level of housing investment still remains near historical highs" — especially in the condo market.

It still sees considerable risks to its base case scenario of a gradual improvement in the economy, particularly failure among policy-makers in Europe to control their debt crisis and in the U.S. to avoid a fiscal cliff at the end of this year that could sap four percentage points from growth.

And of course, the bank sees high Canadian household debt and a correction in housing as a vulnerability.

But it also notes that conditions may become stronger than predicted as well, including a stronger global recovery that provides a bigger bang to Canadian exports.

Also on HuffPost:

Loading Slideshow...
  • 19 (tie): Manufacturing: -9%

    Manufacturing was one of only three economic sectors to shrink in Canada between 2000 and 2011, losing nine per cent of its value. Source: Huffington Post via StatsCan Photo: Globe and Mail

  • 19 (tie). Forestry and Logging: -9%

    Forestry and logging shrank 9 per cent from 2000 to 2011, one of only three economic sectors to see negative growth. Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 18. Fishing, Hunting and Trapping: -6%

    Fishing, hunting and trapping was one of three economic sectors to shrink in Canada from 2000 to 2011, losing six per cent of its value. Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 17. Agriculture and Forestry Support: 33%

    Source: Huffington Post via StatsCan Photo: Rex Features

  • 16. Utilities: 43%

    Source: Huffington Post via StatsCan Photo: Alamy

  • 15. Crop and Animal Production: 44%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 14. Accommodation and Food Services: 50%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 13. Transportation and Warehousing: 54%

    Source: Huffington Post via StatsCan Photo: The Globe and Mail

  • 12. Arts, Entertainment and Recreation: 61%

    Source: Huffington Post via StatsCan Photo: Alamy

  • 11. Wholesale Trade: 62%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 9 (tie). Information and Cultural Industries: 64%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 9 (tie). Education: 64%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 7 (tie). Finance and Insurance: 68%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 7 (tie). Public Administration: 68%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 6. Professional, Scientific and Technical Services: 78%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 5. Retail: 79%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 4. Health Care and Social Services: 87%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 18. Administrative and Support, Waste Management: 90%

    Source: Huffington Post via StatsCan Photo: Alamy

  • 2. Construction: 130%

    Source: Huffington Post via StatsCan Photo: The Canadian Press

  • 1. Mining, Oil and Gas Extraction: 169%

    Source: Huffington Post via StatsCan Photo: AFP/Getty


Loading Slideshow...
  • 7. Huge Regional Disparities

    Wood Mountain (includes oil rich Fort McMurray, pictured here) saw its employment level shoot up by 95% over the 2000 to 2011 period, while forestry based Miramichi suffered the biggest decline of 63% in job numbers.<br> <br> Two out of 33 Census Metropolitan Areas (Windsor and Thunder Bay) had fewer jobs in 2011 than in 2000 while 13 of 45 smaller cities were in this situation. In 2011, only 5.5% of the labour force in Wood Mountain were unemployed while 16.4% were unemployed in Miramichi.<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 6. Jobs Up, Wages Down

    The unemployment rate jumped from a near record low of 6.1% in October 2008 to a high of 8.7% high in August 2009 and has declined slowly since then to 7.2% in March 2012. In spite of the recovery, unemployment duration increased again in 2011.<br> <br> There was a another slight decrease in the number of discouraged job searchers in 2011, who just quit looking because they believed that nothing suitable was available, but their numbers were still 50% above pre-recession levels. Actual hours worked at all jobs advanced to 36.4 hours in 2011 up 24 minutes from the all-time low of 36 hours in 2009.<br> <br> Real (after removing inflation) average weekly wages fell by 0.5% in 2011 following an increase of only 0.2% in 2010. This helps explain why the number of workers who have more than one job climbed for a third straight year to a record 5.4% in 2011. Women (6.4%) are now more likely to have a second job than are men (4.5%) while both were the same (4.6%) in 1989.<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 5. Bad News For Working Parents

    In 2011, the employment rate for lone-parent mothers (55%), lone-parent fathers (79%) and mothers with an employed husband present (70%) all with children under the age of six continued to be below their prerecession peaks. The only exception in 2011 was for women with a non-employed husband for whom the employment rate (53%) was above the pre-recession rate.<br> <br> The "monetary" value of childcare remains undervalued. In 2011, childcare and home support workers working full-time (30 hours or more per week) earned an average of $598 per week. This was the third lowest behind full-time chefs and cooks ($545) and retail sales persons ($589). On a more detailed level, babysitters, nannies and parent helpers were the lowest paid occupation from among over 700 occupations in the 2006 Census.<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 4. Manufacturing Still Struggling

    After eight years of decline, the manufacturing sector created only 15,900 jobs in 2011. Employment in 2011 was about where it was in 1993 and down by 532,200 jobs since the peak in 2004.<br> <br> Based on employment growth over the 2000 to 2011 period, the most rapidly expanding industries in Canada were mining and oil and gas extraction (+70.3%) and construction (+56.4%). Other leading growth industries (all service related) included professional, scientific, technical services (+39.9%), health care and social assistance (+37.9%) and real estate and leasing (+30.1%). <br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 3. Labour Shortages

    For 2011 as a whole, eight (35%) out of the 23 major occupations were in a shortage situation, compared to six occupations in the previous year but still much less than the 10 occupations before the recession began. When examined from an industry basis, there were shortages in five (25%) of the 20 sectors in 2011, up from four during the previous year. <br> <br> In 2011, the unemployment rate among professional occupations in health, nurse supervisors and registered nurses stood at only 0.8%. Unemployment was only 1.9% in technical, assisting and related occupations in health and in professional occupations in business and finance. Demographics point to more shortages in the medium-term.<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 2. Alberta - The Youth Job-Bringer

    Based on a ranking of 10 youth related indicators, Alberta was the best place for youth in 2011 followed by Saskatchewan in 2nd spot and Quebec in 3rd spot. Next in line were Manitoba (4th), Prince Edward Island (5th), British Columbia (6th), Ontario (7th), New Brunswick (8th), Newfoundland (9th) and Nova Scotia (10th).<br> <br> At the national level, recession is still the reality for youth. Youth employment plummeted by 195,400 jobs in 2009 and 2010 combined but only 19,300 jobs came back in 2011. In 2011, employment rates for all youth slipped further to 55.4% (lowest since 2000), was flat for returning students working in the summer (53.8%) but down a lot for full-time students who were working during the school year (36.6%). <br> <br> In 2011, the unemployment rate improved slightly for all youth (14.2%) but worsened for returning students working in the summer (17.4%).<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>

  • 1. A Greying Workforce

    More and more seniors are working longer. The percentage of those aged 60-64 who are employed rose from 34% in 1989 to 47% in 2011 ... a new record. The percentage of those aged 65-69 who are still working jumped from 11% in 1989 to 23% in 2011 ... another new record. The percentage of the 70 and over group who are still working increased to 6% in 2011 ... one more record high. <br> <br> Over the 1989 to 2011 period, the labour force aged 45-54 more than doubled (+108%), those aged 55-64 also more than doubled (+133%) while those aged 65 and older grew even faster (+180%). <br> <br> The recession delayed retirement for many, as record numbers of persons 60 and older remained in the paid workforce. The median retirement age among men (63.2 years) rose for a third consecutive year in 2011 and was the highest since 2003. The median age of retirement among women increased to 61.4 years in 2011 and is the second highest since 1994.<br> <br> -- <a href="http://peoplepatternsconsulting.com/pub_can_job12.html" target="_hplink">People Patterns Consulting</a>