Bank of Canada warns global imbalances risk stability

Bank of Canada Governor Tiff Macklem warned on Monday that widening global economic imbalances are posing a growing risk to financial stability, with potential spillover effects that could impact countries like Canada. Macklem delivered the remarks in Paris, speaking at events hosted by the Chambre de commerce France-Canada and Paris Europlace.

The governor highlighted that persistent trade and capital flow disparities between major economies are creating vulnerabilities that could trigger broader market disruptions. He noted that while such imbalances are normal, they become dangerous when they are excessive and prolonged. Macklem pointed to low domestic consumption in China, large fiscal deficits in the United States, and weak productivity in the European Union as the root causes.

These conditions, he explained, lead to large and volatile capital flows, often channeled through less-regulated non-bank entities like hedge funds and pension funds. This opacity amplifies financial risk, making the system more fragile and susceptible to sudden corrections or capital flow reversals. Macklem drew a parallel to the period preceding the 2008 financial crisis, noting that the...