Economic ‘adjustment’ in progress, Poloz says
OTTAWA• For the governor of the Bank of Canada, the collapse of the global energy market and its impact on growth provides a cautionary tale that has yet to end.
“The global economy retains the capacity to disappoint further,” Stephen Poloz warned Tuesday, less than a week after the central bank decided to maintain its key lending rate at a near-historic low. “The complex adjustment to lower terms of trade will restrain Canada’s growth over much of our forecast horizon.”
Speaking before the House of Commons finance committee, Poloz said “we have not yet seen concrete evidence of higher investment and strong firm creations.”
A crucial crossroad to achieving sustainable growth came after Canada’s economy sunk into an energy- fuelled recession in the first half of 2015, and “set in motion a difficult adjustment process that has been very disruptive for many Canadians,” according to the governor.
“Investment and output in resource industries have fallen precipitously, the decline in national income has curbed household spending, and the resource sector has seen significant job losses,” Poloz said. “These negatives have clearly outweighed the benefits of lower energy costs f or household and businesses.”
The Bank of Canada cut its trendsetting lending level twice last year — in January and July — to the current level of 0.5 per cent.
“Both our policy moves and the lower currency have been helping to facilitate the economic adjustments, which have been playing out over two tracks,” Poloz told the committee.
“While weakness has been concentrated in the resource sector, the non-resource economy continues to growth at a moderate pace — and, within that, non- resource exports are clearly gathering momentum.”
In its Monetary Policy Report, which accompanied last week’s rate decision, the central bank forecast the economy would growth 1.7 per cent in 2016 and 2.3 per cent next year.
Now, monetary policymakers have handed the stimulus role over to the federal government, which in March unveiled the details of its multi-billion-dollar spending program — mostly for infrastructure projects — as well as tax cuts aimed at middle-class families.
Comments by Poloz and Wilkins during their appearance before the committee “reinforces that caution seems to have become the Bank of Canada’s guiding principal,’ said Brian DePratto, at TD Economics.
“Uncertainty surrounding impacts of fiscal measures, alongside the ongoing economic rebalancing, point to a Bank of Canada that is unlikely to move interest rates any time soon,” DePratto said.
“The bank continues to see Canada’s adjustment process as unfolding slowly, helped along by the low level of the policy interest rate.”