Former Bank of Canada governor Mark Carney issued a warning at the World Economic Forum that global supply shocks are becoming more persistent, forcing central bankers to adapt to tame inflation.
Carney, who also previously led the Bank of England, spoke on a panel in Davos, Switzerland at the WEF summit Thursday about how central bankers ought to adapt their approaches for the modern economy.
He said the current regime has been successful so far in taming the ongoing inflationary period, as some of the supply shocks following the height of the COVID-19 pandemic and Russia’s invasion of Ukraine have unwound and higher interest rates globally have limited demand in the world economy.
But he warned that central bankers cannot rest on their laurels amid ongoing geopolitical tensions and a changing economic context.
“We are in a world, I would suggest, where we are going to see additional supply shocks with some relatively high degree of certainty with some persistence,” Carney said.
“Effectively, the world is being rewired.”
Though Carney did not directly reference Houthi attacks in the Red Sea forcing companies to divert cargo away from the key shipping corridor, he said trade routes are being “rewired” to “derisk” global supply chains.
Energy systems, too, are being rewired to address climate change concerns, Carney said. He noted that both of these changes, while they might cause shocks today, “ultimately could bring greater resilience” to supply chains.
Carney also posited that a “rewiring of intelligence” is underway, but argues the impacts of that won’t be felt until later this decade.
'Progress' made on inflation fight
Canada’s annual inflation rate ticked up to 3.4 per cent in December 2023 but has otherwise cooled significantly over the past year and a half amid an aggressive interest rate tightening cycle from the Bank of Canada and central banks worldwide.
Carney said the “job is not complete … but progress has been made” in restoring price stability.
Carney otherwise did not suggest sweeping changes to how central banks aim to maintain price stability through periods of volatility, and said during the panel that he supports keeping the two per cent inflation target.
He lauded nations like Canada who introduced measures to protect the stability of the financial system – namely the mortgage stress test, preparing homeowners for the current jump in interest rates – in anticipation of inflationary bouts and the associated monetary policy tightening.
Elsewhere in Davos on Thursday, Finance Minister and Deputy Prime Minister Chrystia Freeland spoke about the opportunities open to Canada amid a “truly transformative moment” in the world economy.
She spoke on a panel called “No Recovery Without Trade and Investment” and argued that the global clean energy transition puts Canada, with its abundance of critical minerals and manufacturing capacity, in a position to capitalize.
Freeland pitched the global investors in the room on the government’s plans to throw tax credits and other spending behind clean energy investments in the country.
“The cement is being poured for the new economy,” she said.
“We really believe in being out there, talking to investors in the world and saying there’s a lot of natural advantages Canada has, and we’re going to help those advantages along with government policy.”