OTTAWA - Bank of Canada deputy governor Pierre Duguay is warning Canadians not to be spooked by "irrational fear" over the economy and says there's a risk of overstating the global crisis.
"When there is a string of bad news, risk can be overstated," Duguay said Thursday. "People hear bad news and that affects confidence and that can amplify (economic problems)."
And there will be more bad economic news coming, Duguay warned the House of Commons finance committee on Thursday.
In the past few weeks, Canadians have been told that the economy contracted 3.4 per cent last quarter and lost over 210,000 jobs in three months.
As well, announcements of future layoffs -- including Chrysler's decision Wednesday to slash 1,200 jobs in Windsor, Ont. -- have been coming almost daily.
Duguay says Canada will be hit with a string of alarming economic news in the next few months, adding it was urgent that the budget fiscal stimulus package, particularly lending provisions, be put to work in the economy as quickly as possible.
"We are going through a recession and because of fear, consumers are spending less, companies are spending less and that is antithetical to stabilizing the situation," Duguay said.
"It is very important to cut it off at the pass (slowdown), so people can see recovery is coming."
Speaking from Washington, Finance Minister Jim Flaherty welcomed passage of the budget implementation bill in the Commons on Wednesday night, and said there were indications it will get speedy approval in the Senate.
Flaherty has also called for fast-track approval to spend the $3 billion "emergency fund" quickly.
"This is important. As you know the construction season is about to start...and we want to make full use of the six-month construction season," Flaherty said.
But opposition parties have balked at giving the government carte blanche in order for Flaherty to get money out of the door quickly.
Liberal finance critic John McCallum said what his party is seeking "will not delay money by a nano-second."
"All we're asking is for the government to give us a plan on how it intends to spend it ... and the money cannot legally be spent until April 1."
Duguay did not comment directly on the controversy, but did suggest that even with the budget's massive stimulus -- $40 billion over two years -- and the central bank's policies to bring the overnight lending rate to a record low of 0.5 per cent, the Canadian economy will need help.
He said the central bank is keeping with its prediction the Canadian economy will recover in 2010 to a relatively-robust 3.8 per cent advance.
However, he said the bounce-back will be both delayed and weaker if international efforts to stabilize the global financial system are not timely, bold and well-executed.
One of the advantages Canada enjoys, said Duguay, is a relatively healthy and functioning banking system that is the envy of the world.
The latest figures show total household credit in January rising 9.6 per cent over last year and limited deceleration of business credit, he said.
"Accelerating growth in bank lending has helped to offset a contraction in market financing," Duguay said.
