Central banker says growth estimate may have been too cheery

David Longworth, deputy governor of the Bank of Canada, says Canadian banks look comparatively healthy.(Bank of Canada)

A deputy governor of the Bank of Canada says the central bank may have been too optimistic about Canada's second-quarter economic growth.

In mid-July, the bank projected an annualized growth rate of 0.8 per cent for the April-June quarter, an improvement over the previous three months, when the economy shrank at a 0.3 per cent rate.

Federal statisticians are still working on the second-quarter tally, but deputy governor David Longworth said Tuesday that several of the bank's July estimates missed the mark.

U.S. second-quarter growth was somewhat stronger than expected, while growth in the Japan and Europe was somewhat weaker, Longworth said in the text of a speech prepared for an audience of business economists in Kingston, Ont.

"Recent data also suggest that Canadian GDP [gross domestic product] growth in the second quarter was likely somewhat weaker than expected," he said.

Longworth, who has degrees in economics and mathematical statistics, did not try to guess the actual figure.

Were the second quarter to fall into negative territory, it would suggest that Canada is in a recession, a state often defined as two or more consecutive quarters of economic decline.

The deputy governor had some cheerier thoughts, however. So far, he said, Canada has come through a period of credit-market turmoil, energy-price spikes and U.S. economic troubles with its banks looking comparatively healthy.

He offered two conclusions:

"First, the financial system is sound, and the Canadian financial, non-financial, and household sectors are strong enough to deal with the problems we have seen in financial markets.

"Second, we can all do better.

"Over the course of this turbulent year, financial firms and individuals have learned to do better — to better understand and manage the risks that come with investing and the use of credit. This is a welcome outcome. The past year has been a learning experience for all of us, including central banks and other policy-makers."

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