UPDATE 1-Bank of Canada sees economic thaw, warns of storms

* Thaw is coming, real output to hit pre-crisis peak by Q3

* Few signs yet of autonomous private demand growth

* Calls for exchange rate appreciation in surplus nations

* Sees possible trouble if key steps not taken
(Adds details, changes dateline, previous OTTAWA)

WINNIPEG, Manitoba, Feb 4 (BestGrowthStock) – Bank of Canada
Governor Mark Carney said on Thursday the Canadian economy is
looking up and should recover lost ground this year, but he
warned of possible storms if China and the United States do not
take tough decisions.

“My message is relatively straightforward: the thaw is
coming,” he said in the prepared text of a speech he was giving
in Winnipeg. “The recovery has begun. After a brutal economic
winter, spring is within sight.”

Canada’s labor market appears to have stopped bleeding,
businesses expect to make modest fixed investments this year,
real output should reach pre-crisis levels by the third
quarter, and the private sector should be the sole contributor
to Canada’s domestic demand growth next year, he said.

But Carney still saw few signs of autonomous private demand
in most advanced economies.

He said sustained growth required major fiscal
consolidation in the United States and elsewhere, higher U.S.
household savings, policy-induced domestic demand in China and
other nations, and higher exchange rates in countries with big

“Should these conditions fail to materialize over the
medium term, two equally troubling paths for the global economy
are possible,” Carney said.

There would be a return to unsustainable current account
imbalances, which would build financial imbalances again, he
said, or there would be years of fiscal contraction and
sluggishness that could lead to deficient demand and sharp
global disinflationary pressures.

Though Canada’s economy is in many ways in better shape
than its advanced competitors, he said its productivity
performance in the past decade has been abysmal, and tepid
productivity going forward could mean the rate of potential
growth for the economy is closer to 2 percent than the usual 3

The performance of the labor market and productivity growth
will be important influences on monetary policy, Carney said.

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(Reporting by Rod Nickel; writing by Randall Palmer; editing
by Peter Galloway)

UPDATE 1-Bank of Canada sees economic thaw, warns of storms