Education, immigration, can lift growth, BoC says

A top Bank of Canada official points to three areas that could lift the economy’s future growth prospects and have helped in the past: education, immigration and trade liberalization.

Deputy governor Lawrence Schembri mentioned the potential prescriptions in a speech Wednesday that was focused on exploring and demystifying what he called the “somewhat abstract notion” of potential growth, which provides a reading on what the economy can achieve on a sustainable basis over the long run.

He described it as a vital piece of information for the Bank of Canada as it gauges inflationary pressures and contemplates its interest-rate decisions. However, Schembri also described it as slippery number that can be tricky to pin down, to the point it’s “hypothetical.”

One thing about it is apparent: it has been on the decline.

The bank estimates that Canada’s annual potential growth will average 1.8 per cent between 2009 and 2021, which is much weaker than the 2.7 per cent average from 1982 to 2008.

But that doesn’t mean there’s a shortage of tools to jack it back up again, he argued.

“A significant development in recent decades is that growth in potential output has been on a generally downward trend in most major advanced economies, including Canada, largely owing to the aging of our populations,” Schembri told the Ottawa Economics Association and the CFA Society Ottawa. “Nonetheless, we have a rich history of generating economic opportunity and supporting growth, and we should draw from past successes in developing future policies.”