A day before the Harper government unveils its economic update, the Scotiabank's deputy chief economist says Canada needs to cut interest rates in the short term to help stimulate the economy.
"I think in the short term, the Bank of Canada is the answer. We need to get interest rates down more to relieve some of the debt burden strains that are out there," Aron Gampel told CTV's Canada AM.
The Bank of Canada lends money to Canada's banks, with lower rates benefiting consumers and institutions such as Scotiabank, where Gampel is a vice-president.
The BoC is expected to cut interest rates in December, but banks may not follow suit by cutting their rates. Consumer groups have criticized banks in recent weeks for tightening credit conditions and hiking rates for such things as missed payments.
Gampel said Canada's economy has lost momentum, specifically in sectors such as forestry and manufacturing, which are affected directly by the severe downturn in the U.S. economy.
He said interest rate cuts are needed "to encourage Canadians to go out there and leverage themselves up and maybe buy the new cars and help the dealers and help the automakers out."
"I think the stimulus coming from short-term lower interest rates is very important and we have a lot over manoeuvring room," he said.
Gampel noted that the U.S. economy has structural problems that Canada does not.
"The U.S. economy is in desperate need of some type of revival, and they're doing it. They're pumping as hard as they can," he said.
He said the Americans will have to "borrow a lot" to pay for their stimulus package.
"Americans are going to have to pay for it in one form or another in tax increases down the line or cut back in services. I think it's a combination. But they're going to be paying more and getting a lot less going forward," he said.
He said because the U.S. will be affected for years to come, Canada should look to developing stronger links with emerging economies that will grow more strongly.
Finance Minister Jim Flaherty is expected to deliver an update on the state of Canada's economy on Thursday. There's speculation the Tories will call for government belt-tightening and outline an economic strategy. But the Tories have indicated they won't announce an economic stimulus package this week.
