Bank of Canada governor Mark Carney today faced Canadian MPs for the first time since announcing his resignation and appointment as England's central bank governor.
Carney faced a relatively friendly audience in Ottawa on Tuesday compared to his grilling in London last week, fielding questions on a number of topics facing Canadians.
On the topic of household debt, Carney said "Canadians are listening" to the continued warnings of both the Bank of Canada and the Canadian government. He said he expects household debt levels to stabilize at current record levels.
The governor also addressed the issue of pipeline delays in Alberta that a number of recent reports have highlighted as a threat to Canada's economy.
A study by the Canada West Foundation released last week found that pipeline delays would cost the Canadian economy more than $1 trillion over the next 20 years. A similar report out of the university of Calgary said Canada's resource sector is at risk of falling behind internationally if it doesn't find a way to get oil to markets in Asia.
Carney called it an "infrastructure problem," saying both pipeline capacity and refinery capacity are lacking, and that investment needs to be made.
Last week, Finance Minister Jim Flaherty told reporters that lower commodity prices were starting to have a detrimental impact on government revenues.
According to Bank of Canada research on the deficit between what Canadians pay for oil and what Alberta producers receive, it can be as high as $40 a barrel at times.
On the whole, MPs didn't seem too disappointed with Carney's departure to London, with many wishing him well, and that any success he found in London would reflect well on Canada.
Grilling in London
It was a "thorough grilling," said TD Bank chief economist Craig Alexander, but understandable under the circumstances.
The economy in the United Kingdom continues to drag along the bottom — having already suffered through a double-dip recession — and now faces the possibility of the third extended period of contraction.
"So I think it's only natural you would expect a testimony to the (U.K.) Treasury committee to be a tough event because they are basically evaluating whether this foreign national should be allowed to conduct monetary policy for England," he said.
Alexander points out that circumstances are far different in Canada, which has enjoyed mostly an expanding economy since the recession, better than average employment growth and a sound banking system.
The Bank of Canada has been at the upper end of the forecast consensus for most of the past year, particularly for the last two quarters of 2012.
Although the bank did a mea culpa in January, last week's trifecta of bad economic news — outright job losses, lower exports volumes and plummeting housing starts — casts further doubt on the bank's 2.3 per cent call for the first quarter of this year, and also the two-per-cent forecast for 2013 as a whole.
The economic consensus is down to 1.8 per cent for this year and some, like research firm Capital Economics, now believe growth will average no better than one per cent.
Housing sector concerns
Another sour development, to some economists, is the suddenly ice-cold Canadian housing sector. Carney supported the government's clamp-down on mortgage rules in July to slow down household debt accumulation, particularly on mortgages.
But the correction may be more than Finance Minister Jim Flaherty and Carney bargained for. On Friday, CMHC reported that housing starts collapsed to 160,600 annualized for January, a 19-per-cent tumble in one month.
Capital Economics cited the new housing downturn in their revision of gross domestic product growth to one per cent.
"In theory it is possible that... the drop in January's starts figures could just be statistical noise," explained chief economist David Madani. "Coupled with the corresponding slump in building permits over the past couple of months, however, it is clear this is no statistical fluke, but rather the start of a severe downward trend."
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