LONDON, Ont. — The country's economic growth is facing another set of challenges and weakness in exports is weighing particularly heavy on the Bank of Canada's outlook, governor Mark Carney said Monday.
"In the very near term, more of the elements of the downside risk have materialized than the upside risks,'' Carney said after a speech to students at the Richard Ivey School of Business in London, Ont.
"We've dampened our forecast of exports because we're seeing a competitiveness challenge _ a productivity issue. Even with that, the export performance has been lower on average than we have expected.''
The country's central banker made the comments following disappointing economic data last week that showed inflation at its lowest point in more than three years and a holiday shopping season that fell short of expectations.
Further signs of weakness are expected in the fourth-quarter and December GDP data that's due from Statistics Canada on Friday. Consensus expectations are for quarter-over-quarter annualized growth of 0.7 per cent. December GDP is expected to slide 0.1 per cent after a 0.3 per cent climb in November.
In its monetary policy review last month, the central bank said the Canadian economy inched along at only one per cent in the last three months of the year. As well, the Bank of Canada downgraded growth expectations for 2012 and 2013 by three-tenths on both counts to 1.9 per cent and 2.0 per cent respectively.
The Bank of Canada is expected to update its economic forecast in April.
Carney, who said the central bank's forecast is a little more optimistic than the consensus of private sector economists, explained the economy is in the midst of a rotation from depending on the housing market and debt to stronger business investment and exports.
"We have expectations of solid business investment, we stick by those, but maybe a little tougher is on the exports side where we haven't seen that pickup yet,'' he said.
"That can induce some choppiness.''
He also played down the role of the Canadian dollar, which has slipped below parity this year, as one of the ``root causes'' of the weakness.
"Obviously the level of the currency affects export performance and the pace of imports,'' he said.
But he added, "We don't have a view that you depreciate yourself to prosperity.''
"The building up of the productive base of the country is what continues to be required, which is another reason why that pickup in investment is important.''
The comments came after a speech in which he said it will take more than tough new regulations to restore trust in the banking system in the wake of the financial crisis. In a speech at the business school at Western University, he said the financial reforms by the G20 will go a long way, but will not be enough.
"To restore trust in banks and in the broader financial system, global financial institutions need to rediscover their values,'' he said.
"For companies this responsibility begins with their boards and senior management. They need to define clearly the purpose of their organizations and promote a culture of ethical business throughout them.''
Since the financial crisis, several major global banks have faced allegations of manipulating key financial benchmarks, money laundering and unauthorized use of client money.
Carney points out that reduced trust in the financial system increases the costs and lowers the availability of borrowing for non-financial companies.
"Financial capitalism is not a end in itself, but a means to promote investment, innovation, growth and prosperity. Banking is fundamentally about intermediation _ connecting borrowers and savers in the real economy,'' he said.
The former Goldman Sachs investment banker also heads the Financial Stability Board where he has responsibility for overseeing global financial reforms.
He is leaving the Bank of Canada in June to become governor of the Bank of England.In 2011, Carney clashed with JPMorgan Chase head Jamie Dimon in a behind-closed-doors meeting in Washington over the need for stronger regulations in the financial sector.