But he warned that the financial-markets aid package being introduced by Washington to mobilize more than $1-trillion (U.S.) needs to work in order for the Canadian projections to materialize. The decisions by the United States and other countries to isolate and absorb banks' toxic assets is also key to Canada's recovery, Mr. Carney said.

 

“If these national and multilateral measures are not timely, bold, and well-executed, Canada's economic recovery will be both attenuated and delayed,” he said in a statement. The Bank of Canada Governor warned that the U.S. economy won't return to its pre-recession size for another two and a half years.

 

“This sluggishness reflects the lingering effects of the crisis on the U.S. financial system and the slow recovery of domestic consumption owing to the magnitude of wealth effects and the deterioration in the labour market,” he said.

 

But he said Canada has many things going for it, allowing a quicker recovery here. Mr. Carney pointed to Canada's hefty interest rate cuts, the well-functioning banking system, the depreciation of the dollar, fiscal stimulus, a recovery in emerging markets that lifts commodity prices, and solid balance sheets among Canadian households and businesses.

 

Members of Parliament questioned Mr. Carney's forecast, suggesting it was more driven by outdated models than a firm grip on the depth of the global recession and market dysfunction. But Mr. Carney replied that the central bank uses 21 different models to come up with its projections, many of which are state-of-the-art. And then, the bank tailors its forecast with “a heavy overlay of judgment” to reflect what the bank's staff gathers in its on-the-ground research.

 

“We don't do optimism, we don't do pessimism. We do realism at the Bank of Canada,” he said – prompting economists to observe that the central bank would not waffle on its forecast despite recent bad news.

 

“These are not the words of someone looking to hedge their bet,” said Michael Gregory, senior economist at BMO Nesbitt Burns.

 

Many private-sector economists say the central bank forecast for 3.8-per-cent growth next year in Canada is far too rosy, especially given recent data showing widespread job losses. But Mr. Carney said he had anticipated a nasty year for Canada this year, and the 129,000 jobs lost in January – the largest monthly drop in recorded history – fit into that picture.

 

“Unfortunately, the last employment report is broadly consistent with our outlook,” Mr. Carney told the committee. He recognized that 3.8-per-cent growth may seem impossible now, but is actually more pessimistic than history would suggest.

 

“Though seemingly impressive when viewed from the depths of a recession, such a recovery is actually more muted than usual,” he said.

 

Many major countries are working together to cut rates and increase government spending in order to save the global economy, and the accumulative effect of such stimulus could well be considerable, he said. But he added that any recovery is dependent on calm returning to financial markets.

 

“As we have consistently emphasized, stabilization of the global financial system is a precondition for economic recovery globally and in Canada,” he said.

 

He said he would continue to cut interest rates if warranted, but made no promises. He also said the central bank would continue to provide financial markets with extraordinary lending if need be.

 

And he was vehement that the central bank still has many tools at hand to manage the economy, even though the bank's key interest rate stands at a historic low of 1 per cent.  “We have considerable flexibility,” he said.

 

But he repeated that the Bank of Canada would only unleash its remaining tools if circumstances demand, and reminded MPs to consider how much the central bank has already done – some of which has yet to take full effect.

 

You can read the actual remarks from the Bank of Canada Governor to the Finance Committee here.