Pa­tience with pe­tro­leum

The Labradorian - - FRONT PAGE - BY JAMES MCLEOD

Oil rev­enue will flow again for prov­ince, Bank of Canada gov­er­nor says

Bank of Canada gov­er­nor Stephen Poloz said it’s im­pos­si­ble to make mon­e­tary pol­icy that al­ways fits for New­found­land and Labrador.

In an ex­clu­sive in­ter­view with The Tele­gram Wed­nes­day, Poloz said the Bank of Canada doesn’t ig­nore the smaller pock­ets of the Cana­dian econ­omy, but there’s a hard limit on how much im­pact places like New­found­land and Labrador can have on na­tional rate-set­ting de­ci­sions.

“Re­gional diver­sity is a per­sis­tent is­sue and it means that it’s a big chal­lenge for macro pol­icy mak­ers, be­cause we only have one tool, we can only tar­get the na­tional av­er­age, and me­chan­i­cally the na­tional per­cent­age is only a small per­cent­age New­found­land and Labrador,” Poloz said.

Poloz gave a speech to the St. John’s Board of Trade closely watched by fi­nan­cial mar­kets in the wake of two rate hikes to the Bank of Canada bench­mark in­ter­est rate ear­lier this year. Broadly speak­ing, Poloz used his speech to talk about how things have shaken out in the na­tional econ­omy in the wake of the 2014 oil crash, with nonen­ergy ex­ports com­pen­sat­ing for the drop in oil rev­enue.

He said there’s still a lot of un­cer­tainty when it comes to the eco­nomic out­look in the com­ing months, and the Bank of Canada will be cau­tious and “data de­pen­dent” when it comes to fur­ther in­ter­est rate hikes.

“To be clear, the im­pact of the shock was still vis­i­ble in en­ergy in­ten­sive ar­eas of the coun­try,” Poloz told the Board of Trade lun­cheon at­ten­dees at the Hol­i­day Inn. “But this was be­ing off­set at the macro level by greater strength in other ar­eas.”

Over­all, the Cana­dian econ­omy might be do­ing well, but the pro­vin­cial govern­ment in New­found­land and Labrador is fore­cast­ing de­clin­ing real GDP un­til 2019.

Poloz wouldn’t re­spond to ques­tions from jour­nal­ists about the pro­vin­cial govern­ment’s eco­nomic stew­ard­ship, or the state of the scan­dalplagued Muskrat Falls project. Speak­ing in very broad terms, though, he said he sees cause for op­ti­mism in oil­pro­duc­ing parts of Canada.

“What we see al­ready, ac­tu­ally, Al­berta has turned and is con­tribut­ing to growth,” he said. “We’re a lit­tle late, a lit­tle be­fore that stage (in New­found­land and Labrador), but there’s lots of pos­i­tive sto­ries that are emerg­ing, so we just have to be pa­tient for that growth to emerge.”

Poloz said one of the ma­jor sources of eco­nomic un­cer­tainty right now is the on­go­ing NAFTA talks, and he al­luded to U.S. Pres­i­dent Don­ald Trump’s threat to tear up the free trade agree­ment.

“Of course, we don’t have any­thing con­crete to an­a­lyze, just know it would be a neg­a­tive shock to the Cana­dian econ­omy if NAFTA were to be ripped up,” Poloz said.

Poloz said the un­cer­tainty around the on­go­ing NAFTA ne­go­ti­a­tions are hurt­ing the econ­omy, though.

“It af­fects a busi­nessper­son’s con­fi­dence, or their will­ing­ness to in­vest and so on. We’re heart­ened that sen­ti­ment in­di­ca­tors have ac­tu­ally strength­ened quite a bit this year, de­spite that lingering un­cer­tainty, and it may be that com­pa­nies have fig­ured, well, the pres­i­dent hasn’t suc­ceeded in do­ing much so far, so there’s not an im­mi­nent dan­ger. They have to give the talks a chance to see how they turn out. Or it could be just by ne­ces­sity — they’ve hit ca­pac­ity and they’re in busi­ness, they plan to stay in busi­ness, so they plan to in­vest de­spite that,” Poloz said.

“I think the econ­omy would be even stronger were it not for that un­cer­tainty about what the fu­ture of NAFTA might look like. We’re watch­ing it very closely. It mat­ters a lot to com­pa­nies, there­fore it mat­ters to the econ­omy, there­fore it mat­ters to us.”

PHOTO BY JAMES MCLEOD

Bank of Canada gov­er­nor Stephen Poloz.

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