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Canada: We must adapt to low growth

The faster economies adjust to a new reality, the better, a central bank governor said.

By Daniel J. Graeber
Canada: We must adapt to low growth
Canadian central bank official said from an overseas economic conference its time to get used to slow growth. File photo by Stephen Shaver/UPI | License Photo

LONDON, Sept. 14 (UPI) -- The faster the economy of oil-rich Canada adjusts to slower growth, the more secure the situation will be, a senior central bank official said Wednesday.

"We have to adapt to the new reality of lower potential growth," Bank of Canada Senior Deputy Gov. Carolyn Wilkin said in a statement from in London. "The faster we do this, the safer the financial system will be."

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By her estimate, the potential growth rate for the global economy, measured in terms of gross domestic product, fell from 5 percent in 2005 to 3 percent this year. That represents about $1.5 trillion in lost output this year.

For Canada, the bank said national GDP was pulled down in the second quarter by May wildfires in Alberta, which sidelined around 1 million barrels of oil per day.

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The bank's global counterparts, meanwhile, have been reluctant to pull the trigger on rate hikes, suggesting the world's economy was not yet robust enough to support an end to easy-money policies. Wilkin said the decline in the global growth potential, and the lower rates that go with it, create risks in their own right.

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The bank, nevertheless, said last week it was keeping its own rates unchanged. In July, it estimated the Canadian economy contracted 1 percent in the second quarter, but should return to growth as oil production recovers in Alberta.

Wilkins defended the policy rate in Canada as "quite stimulative."

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As a whole, the bank said last week the decline in total exports were more broad-based than expected. Alberta's government, for its part, said it was offering around $23 million over two years to help pay for long-term, locally developed projects meant to create jobs and diversify the provincial economy.

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