Trade issues, oil slump, lower spending have slowed growth

Canadian economy in ‘temporary’ soft patch, Bank of Canada deputy governor says

OTTAWA— The effects of U.S. trade unknowns, lower oil prices and weaker housing and consumer spending are behind the recent deceleration in economic growth, a Bank of Canada deputy gov- ernor said in a speech Wednesday.

To help the economy get through this “temporary” soft patch, Timothy Lane is expecting the lower Canadian dollar to provide support.

Lane told a Washington audience that the loonie has been influenced by these factors as well as the indirect effects related to fiscal stimulus that has energized the American economy. The results have led the U.S. Federal Reserve to raise interest rates, he added.

“This combination of factors has been putting downward pressure on the Ca- nadian dollar,” Lane said in his address to the Peterson Institute for International Economics.

“The lower Canadian dollar, in turn, will help support the economy through

this period.”

Last month, Bank of Canada governor Stephen Poloz kept his benchmark interest rate unchanged at 1.75 per cent as the economy navigates what he described as a temporary period of softness created by a recent, sharp decline in world oil prices

Poloz said the central bank will continue raising rates once Canada’s economy builds new momentum. A stronger economy has prompted him to hike the rate target five times since mid-2017 to keep inflation from running too hot.

On Wednesday, Lane also said uncertainty related to U.S. trade policies has kept business investment lower than where it should be at this point, given the overall strength in the Canadian economy.

Lane’s speech focused on explaining how Canada manages its foreign reserves, which he decade ago. Reserves in Canadinoted are about $85 billion an dollars are now about (U.S.), or 5 per cent of the coun$200 billion, he said. try’s gross domestic product. “The move to hold a portion of

He described the size of Canareserves in Canadian dollars is da’s foreign reserves as modest part of a broader strategy of reyet adequate, because the counserve diversification,” he extry has a freely floating explained. change rate. “It is also, in some sense, a vote

Lane noted that other central of confidence in Canada: rebanks and monetary authoriserve managers tell us they are ties have started adding Cana-. attracted by Canada’s sound fidian-dollar assets to their renancial system and fiscal posiserve portfolios following the tion, as reflected in its high global financial crisis about a credit ratings.”