European economy vulnerable to geo-political risks: Oliver
OTTAWA — Finance Minister Joe Oliver says developments in Ukraine and Iraq are endangering the global financial and economic recovery, particularly in still-fragile Europe.
The minister, who was nearing the conclusion of his trip to the United Kingdom, Germany and Poland, said he has been alerted by Europeans about mounting risks.
He noted that the overall growth rate in Europe remains very low and the latest inflation reading was only 0.5 per cent.
“So there is a very real risk of deflation and the banking system is more fragile than we would like to see,” Oliver said Friday.
“In this environment, additional external shocks can be quite dangerous,” he added, citing the political tensions in Ukraine and strife in Iraq that has led to a spike in oil prices.
Despite unprecedented low interest rates, governments and companies are not investing, he said, and lenders have again started taking on risk in the search for yield.
He said the gap in yields among countries and companies with very different credit ratings has narrowed, which “suggests that lenders are taking on more risk than they have before.”
Oliver said Europeans are well aware of the challenges confronting them and that they will be discussed at the next G20 meeting in the fall.
Relative to Europe, Canada’s banking system is doing well, as is the economy overall, he said.
On Thursday, Canada’s financial system supervisor, however, expressed similar concerns about Canadian banks going out on a limb with risky loans.
“While underwriting practices may be good today, past experience suggests that it could become very tempting in the current environment for mortgage lenders and insurers to ease up under the enchanting lull of the siren song of market share,” Mark Zelmer of the Office of Superintendent of Financial Institutions told a housing conference.
Most analysts blame lax lending standards, particularly in the U.S. housing market, for the collapse of several U.S. investment banks in 2008, triggering the global recession.