New top banker takes reins under pile of debt

Macklem faces a deep crisis as Bank of Canada term begins

It would be hard for Tiff Macklem to imagine a worse economic backdrop to begin his seven-year term as Bank of Canada governor.

One quarter of the nation’s labour force is out of work due to the coronavirus pandemic and an oil-price crash triggered the deepest recession in the postwar era. Tens of thousands of Canadian businesses will almost certainly close in the next several months, bringing lasting damage to an economy that was struggling even before the crisis, and is seen as lagging the recovery in the U.S.

For Macklem, a career technocrat and most recently dean of the University of Toronto’s business school, that will mean testing the limits of debt accumulation in a country that — with total government, corporate and household

liabilities topping 300 per cent of gross domestic product — is already one of the most-highly leveraged in the world.

To counter the slowdown, the new governor, who replaces Stephen Poloz on Wednesday, will keep financial conditions as loose as they’ve ever been in the central bank’s nine-decade history. Economists expect the central bank to leave the benchmark interest rate near zero for the foreseeable future, starting with a decision at 10 a.m. in Ottawa, and to keep the economy awash in cash.

The Bank of Canada has expanded its balance sheet to about 20 per cent of Canada’s GDP, up from about five per cent pre-crisis, with the purchase of $344 billion of government bonds and other assets. It’s a situation fraught with risk, but many see Macklem as uniquely qualified to deal with it.

“He’s got great common sense, he’s whip smart, he can frame ideas very clearly and has rocksolid judgment,” said Jean-Francois Perrault, chief economist at Bank o-f Nova Scotia, who worked with Macklem at the Bank of Canada and during his stint at the finance department in the financial crisis.

Macklem comes into the job with solid credentials as an economist, central banker, government official and business insider. He was a key architect of the global response to the financial crisis just over a decade ago, when he served as a top aide to then Finance Minister Jim Flaherty. Mark Carney, Bank of Canada governor during the crisis, recruited Macklem in 2010 as his secondin-command.

The new governor will need to draw on that breadth of experience to get to grips with the most pressing challenge: steering the economy out of its downturn.