VZCZCXRO0593
PP RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
DE RUEHOT #0116 0432036
ZNR UUUUU ZZH
P 122036Z FEB 09
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 9067
INFO RHEHAAA/WHITE HOUSE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHME/AMEMBASSY MEXICO 1925
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS OTTAWA 000116 
 
STATE FOR E, EB/DCT, WHA/EX, WHA/CAN 
 
STATE PASS USTR (SULLIVAN) 
 
COMMERCE FOR ITA/MAC (WORD) 
 
TREASURY FOR IA (NEPHEW) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: BANK OF CANADA GOVERNOR DEFENDS OPTIMISTIC GROWTH FORECAST 
FOR 2010 
 
Ref:  Ottawa 0080 
 
 
¶1. (U) Summary: The Governor of the Bank of Canada predicts the 
Canadian economy will recover from the global financial crisis in 
late 2009, with growth approaching 4 percent in 2010.  However, 
Canadian economic recovery is dependent on a range of domestic and 
international factors, including the success of US economic stimulus 
measures. 
 
¶2. (U) In statements to the House of Commons Standing Committee on 
Finance on February 10, 2009, Bank of Canada Governor Mark Carney 
forecast a 1.2 percent contraction of the Canadian economy in 2009, 
followed by a 3.8 percent rebound in 2010. 
 
¶3. (U) Canadian recovery is conditional upon a number of existing 
and proximate conditions. At the domestic level Governor Carney 
identifies significant and timely monetary policy responses; a 
well-functioning financial system; fiscal stimulus measures; the 
past depreciation of the Canadian dollar; and rising levels of 
domestic investment, consumption and demand.  At the external level, 
Carney links Canada's recovery to improved stability in 
international financial and housing markets and rebounding demand 
and prices for commodities. Approximately one third of Canadian 
growth potential is domestically sourced so Canada's recovery 
prospects are highly dependent on external factors. 
 
¶4. (U) The Governor underscored stabilization in the global 
financial system as the major pre-condition for Canadian recovery. 
In Carney's view, this stability relies on successful execution of 
the US and EU stimulus and stabilization plans; improved 
multilateral financial regulation; and adequate resources for the 
IMF. Carney is optimistic that Canada can contribute strongly to a 
"macro-prudential" framework for multilateral financial regulation, 
which will be discussed at the upcoming G-20 meeting in London. 
Carney sees Canada as a leader in these efforts because "we're the 
ones with credibility; we're the ones who have taken the right 
steps." 
 
¶5. (U) Canada's quick monetary response to the financial crisis 
seems to be paying off. The benchmark lending rate stands at one 
percent after the Bank of Canada cut rates by 350 basis points since 
December 2007. Canada now claims negative real interest rates 
(interest rates lower than core inflation) which, Carney predicts, 
will boost borrowing and exert powerful stimulus on economic 
activity. 
 
¶6. (SBU) The Bank of Canada has been criticized recently for overly 
optimistic predictions for economic recovery. However, Carney argues 
that Bank of Canada forecasts are realistic, and are based on a 
composite of 21 models. "We don't do optimism, we don't do 
pessimism. We do realism at the Bank of Canada." University of 
Toronto economists issued a forecast on Monday that parallels the 
Bank's predictions, calling for marginal growth beginning in the 
third quarter of 2009, building toward output of 3.7 percent in 
¶2010. However, authoritative observers suggest that the Bank of 
Canada is maintaining a "glass-is-half-full" view to boost business 
and consumer confidence.