Economic contraction will be deep, Carney tells Yellowknife audience

Bank of Canada governor Mark Carney said Wednesday that Canada's economic contraction in the first quarter of 2009 now appears likely to be the worst on record since 1961.

The head of Canada's central bank made the comment during a speech in Yellowknife at a meeting of the Northwest Territories Chamber of Commerce and the Yellowknife Chamber of Commerce.

Some private sector economists are projecting a first quarter contraction at annualized rates ranging up to almost six per cent.

Amid falling demand for Canadian exports and weak consumer demand within Canada, Carney also expects the economy could continue to contract into the second half of this year.

"As noted in our March interest rate decision, the Bank now expects the output gap will be considerably wider than before, and we do not expect it to begin to close until the first quarter of next year, at the earliest," he said.

That marks a depature from the bank's forecasts in late January, when it projected growth for the second half of this year. The bank also predicted 2010 growth of 3.8 per cent

That forecast has been slammed in many corners as overly optimistic.

Carney is due to update Bank of Canada's economic outlook on April 23 when he release the bank's monetary policy report.