BoC sees encouraging signs
Deputy governor also raises caution over protectionist sentiment in some parts of world
SASKATOON — A senior Bank of Canada official says the central bank is seeing encouraging signs that exports and business investment are broadening and strengthening.
In a speech to the Saskatoon Regional Development Authority, deputy governor Timothy Lane said Monday international trade is key to Canada’s economic growth potential.
However, he cautioned the central bank is also keeping close tabs on the rise in protectionist sentiment in some parts of the world and what it might mean for the Canadian economy.
Nick Exarhos of CIBC Economics says Lane’s speech may signal “a gradualist approach to further tightening from here, with the loonie’s recent strength likely garnering more attention from the BoC.”
Exarhos in a note points out that the deputy governor stresses how a strong Canadian dollar had “battered” export industries over the past decade and commented specifically that manufacturing and service oriented industries need to “grow faster and export more.”
Lane noted that populist movements in some of Canada’s major trading partners are demanding new trade barriers and that such protectionist measures would undoubtedly mean less trade, which would reduce economic growth.
“With the rise in protectionist sentiment in some parts of the world, we have been entering a time of heightened uncertainty about the rules of the game on international trade,” said Lane, according to a prepared text of his speech released in Ottawa.
“The possibility of a material protectionist shift — particularly regarding the outcome of negotiations on possible changes to NAFTA — is a key source of uncertainty for Canada’s economic outlook.”
Ongoing talks between Canada, the U.S. and Mexico to renegotiate the NAFTA agreement began this summer.
U.S. President Donald Trump promised changes to the deal in his election last year and has threatened to end the agreement if he can’t make the changes he wants.
In his speech, Lane said expanded markets for Canadian exports have not been the only benefits from trade liberalization.
“We also benefit from the greater efficiencies that can be achieved by those exporters that do expand, the heightened competition and better access to imported inputs that come with greater openness to imports and the resulting spur to innovation throughout the GVCs (global value chains),” he said.
“If trading rules are changed in a way that undermines these benefits, the result would be both lost external demand for exports and lower potential growth for Canada as well as for the United States and other trading partners.” The Canadian Press