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Blog by Kevin Wong

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Canada May Have To Slash Interest Rates If Outlook Slides Further: OECD

The Bank of Canada may have to slash interest rates if the country's rapidly waning economic outlook deteriorates further, the Organization for Economic Cooperation and Development warned in a report Monday.

"The risks are skewed to the downside" the Paris-based think-tank for the world's wealthy nations cautioned in its latest Economic Outlook. "The out-look for the Canadian economy has worsened significantly."

In a report tinged with dire warnings of the impact of further foot-dragging by European leaders on the currency zone's debt crisis, the OECD warned: "If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption."

The OECD drastically cut its outlook for growth in Canada in the year ahead, down to 1.9 per cent from its previous forecast of 2.8 per cent in May, citing the impact of the European debt crisis, a deteriorating external market for its exports - worsened by the strong Canadian dollar - and high personal debt loads.

The outlook for this year was pared to 2.2 per cent from three per cent in May.

Government cutbacks and a softening job market will likely affect household spending, it said, as personal debt levels remain high and consumer confidence remains frail.