STEPHEN POLOZ

Incoming Bank of Canada governor Stephen Poloz will be tackling an economy that has defied years of efforts to get it operating on all cylinders again.

As former head of Export Development Canada, the 57-yearold economist has travelled the country talking directly to companies that sell overseas, giving him extensive first-hand knowledge of one of the elements that have gone missing in Canada’s economic rebound.

A poor showing by exporters was a major contributor to the unexpected weakness in the Canadian economy last year, when growth came in at a meagre 1.8 per cent.

“What we’re for looking is that the engine of growth on the demand side gradually shifts into the export side of the economy,” Poloz told reporters probing his outlook as he prepares to take over Canada’s central bank.

Economists speculated after Poloz’s appointment that his understanding of the export sector makes him the perfect choice for Prime Minister Stephen Harper’s government, which has anchored its economic strategy on increasing overseas commerce.

“It’s not a secret that the finance minister and the prime minister are very keen on improving our export performance, and having an ally in the Bank of Canada on this front and somebody who dealt with this sector for a while also will help,” CIBC World Markets deputy chief economist Benjamin Tal said.

Poloz is known to be a proponent of allowing markets to operate with as little government interference as possible. But he is not expected to alter the current approach of the Bank of Canada, which is holding its key interest rate at a near-rock-bottom 1-per cent level in hopes of boosting the economy.

If anything, analysts said, Poloz may be tempted to lower the key interest rate further, which would push down the value of the loonie on foreign exchange markets. Any depreciation of the dollar helps exporters by making their products more competitive abroad.

Poloz, like departing governor Mark Carney, is a smart, outgoing figure with a knack for reducing complex economics to user-friendly messaging. Poloz will need all his skills to cope with the persistently uneven economic picture.

Besides weak exports, the economy is struggling with flat global conditions, including a recession in Eu- rope and economic malaise in the United States. On top of that, there is a slowdown in the domestic housing market, and a record-high level of household debt, which poses significant economic risks.

“The finance minister and the prime minister are very keen on improving our export performance.” BENJAMIN TAL CIBC WORLD MARKETS ECONOMIST

“The Canadian economy has been through a difficult period,” Poloz said this week. In a reference to shocks from the global economy, he added, “The outcomes that we’ve seen are in a great big context . . . we don’t control all those things.” The important thing is to position “Canadian companies in such a way that they can capitalize on what opportunities are there,” he said. Carney, who is leaving Ottawa to take the reins of the Bank of England, is credited with helping Canada weather the 2008-09 recession. But his experience shows how difficult it is lay the groundwork for strong business conditions. In 2008, when the former investment banker became Bank of Canada governor, the country was coming off three years of solid economic growth. The bank’s trend-setting overnight interest rate stood at 4 per cent. Few realized then the severity of the coming economic crisis. But before the year was out, Carney was taking steps to keep credit flowing in the financial system and had joined with other central banks in a desperate effort to revive their economies.

By April 2009, the Bank of Canada’s key rate had plummeted to 0.25 per cent. And Carney broke new ground by explicitly assuring financial markets that the bank would not move to push up interest rates for more than a year.

In September 2010, the rate settled at 1 per cent and, despite suggestions from Carney that he was inclined to raise borrowing costs, it has not budged since, a period of inactivity on rates by the central bank unmatched in half a century.

In the past several years, the bank’s prediction of when the economy will be working at full steam has been gradually pushed back from 2011 to mid-2015.