The Canadian Press

A slow economic recovery will mean at least five years of weak growth in North America and Europe, National Bank (TSX:NA) president Louis Vachon said Thursday.

Exceptionally low interest rates and massive government stimulus have prevented a global depression, but governments and central banks will soon be forced to stop those practices, the head of Canada’s sixth-largest bank told a Quebec Chamber of Commerce business outlook conference.

In the medium term, these policies won’t be “defensible,” he said.

Vachon said he expects five years of weak economic growth, but didn’t quantify that forecast.

A bank spokesman later said Vachon was referring to real annual economic growth after inflation of between 1.5% to 2%.

Like several economists, the banker said the global recovery will be fed by emerging countries, compared to recent years when western consumers in the United States, Canada and Europe were the primary drivers of global economic growth.

The challenge will be for financial institutions, businesses and people to play their cards well in such an environment, he said.

Vachon said that between 2003 and 2007, banks were in “nirvana.”

Banks profited from high savings, strong economic growth, acceleration in loans, low losses and the dramatic offering of complex new financial products.

The environment was “almost perfect,” he added.

Vachon admitted that financial institutions put too much emphasis on “innovations” in new financial products and not enough on internal controls. In this context flourished the asset-backed commercial paper fiasco in which the National Bank played a key role.

IE