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Bank of Canada: slow global growth a risk to financial stability 

September 15, 2016

David Milliken, Reuters

The reduced potential for global economic growth and resultant lower neutral interest rates could pose risks for financial stability, a senior Bank of Canada official said on Wednesday.

Economic growth since the global financial crisis has repeatedly disappointed economists, Senior Deputy Governor Carolyn Wilkins said, noting that the Bank of Canada's own forecasts overestimated global growth by an average of a half a percentage point each year in the past four.

The central bank estimates potential global economic growth has declined from a peak of about 5 percent in 2005 to just over 3 percent this year, Wilkins said, speaking before the Official Monetary and Financial Institutions Forum in London.

That lower growth environment drives down the neutral rate of interest, the level where interest rates would be if the global economy were operating at full potential, she said.

"While we typically link financial stability risks to unsustainably high growth, slower growth and lower returns can also add to vulnerabilities in the financial system," Wilkins said in prepared remarks. Read more

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