The recent recession has significantly altered the pace and pattern of global growth, and will have hefty repercussions in the long run, Bank of Canada Governor Mark Carney said on Monday.

Speaking to the Greater Victoria Chamber of Commerce, Carney said the rate of potential growth in the global economy has likely fallen in the aftermath of the financial crisis and will take some time to rebuild.

“This was the Great Recession, and it will have far-reaching repercussions,” he said. He explained that the fiscal cost of arresting the downfall would need to be contained and then repaid over many years, and that the sources of demand would need to rebalance, both within and across economies.

“Addressing these challenges will require difficult and extensive measures in all economies,” Carney said.

He noted that there are increasing signs that economic activity has begun to expand in many countries around the world, and said growth is probable in all major economies this quarter. In fact, Carney said the pace of global growth next year is likely to be even higher than the Bank had projected in its last Monetary Policy Report.

Canadian GDP growth in the second half of 2009 is also likely to be stronger than the latest Monetary Policy Report projects, Carney added.

“Our recovery will be supported by the relative health of Canadian balance sheets, our well-functioning financial system, the timeliness of monetary policy action, and the recent firming of commodity prices,” he said.

But Carney warned that the return to growth around the world has been largely a result of temporary stimulus measures.

“Initial success should not give way to complacency,” he said. “Only the unprecedented and decisive actions across G-20 nations arrested the economic free fall and have begun to boost global demand.”

This is true in Canada as well. For instance, he noted that the hefty jump in auto production is largely a result of the need to rebuild inventories that have been drawn down by the U.S. cash-for-clunkers program.

A sustainable recovery that brings the economy back to its productive potential will require sustained private demand growth beyond these temporary factors, Carney said.

“With the fiscal stimulus largely finished by next year, consumer and business spending will need to drive economic growth,” he said.

“We may be on the right track, but there is a long road ahead.”

In terms of the central bank’s views on inflation, Carney said “considerable risks to the outlook” remain. Upside risks include a faster-than-expected recovery in consumer and business confidence and further improvements in Canada’s terms of trade. Downside risks include setbacks in the ongoing repair of the global financial system and more persistent weakness in foreign private demand, as well as the possibility of persistent strength in the Canadian dollar.

“The Bank will assess the balance of risks to inflation in its upcoming MPR,” Carney said.

IE