OTTAWA – Bank of Canada governor Stephen Poloz says the country’s economy is finally making progress after hobbling through the effects of the slow U.S. recovery, feeble exports and a stubborn commodity-price slump.
In a speech Wednesday, Poloz said while the economic situation remained complicated and uncertain, he was confident Canada was emerging from its stretch of slow growth.
“Continued patience is required, but we have the right to be optimistic,” Poloz told the Yukon Chamber of Commerce in Whitehorse.
Poloz pointed to signs that Canada is benefiting from a stronger U.S. economy, a robust level of household spending and a rebound in many non-energy export categories.
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For example, he noted that recent numbers have shown improvements in the export of items such as packaging materials, furniture and pharmaceutical products. He added that tourism has also seen a boost in Canada, which has seen its currency depreciate.
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In a question and answer period following the speech, Poloz said some exporters in touch with the central bank have indicated they are starting to disappoint clients because they’re struggling to keep up with growing demand.
“That’s the turning point where they may invest in more equipment, expand by 10 per cent or what have you, hire a few more people and then they grow their business,” Poloz said after fielding a question on whether companies are taking on enough risk.
“That’s the phase of the expansion that we’re watching for and we know they’re close to being ready.”
But the encouraging evidence doesn’t erase the fact the economy still has tough times ahead, he said.
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For one, Poloz said the national economy took an unexpected hit from the huge wildfire that swept through Alberta. It forced 90,000 people to flee Fort McMurray and the shutdowns of crucial oil-production facilities.
He predicted the impact of the wildfires to shave between one and 1.25 percentage points from annualized second quarter growth, which could produce a slight contraction. However, Poloz added that the dip likely means the third quarter will show bigger-than-expected growth, which is measured by real gross domestic product.
“This suggests to us that GDP growth will be very choppy in the near term, in the second and the third quarters,” he said.
The Bank of Canada will update its projections next month in its monetary policy report — a package of forecasts that Poloz suggested could shift once again depending on the outcome of the upcoming referendum on whether Britain will leave the European Union.
The federal Liberals have warned that a vote by the United Kingdom in favour of leaving the EU — the so-called Brexit — would be a negative for the Canadian economy.
Poloz also noted that the central bank continues to monitor the potential financial stability risks caused by strong household spending, particularly in the soaring real-estate markets of Vancouver and Toronto. He said while it remains a concern, the bank predicts the level of risk to fade as the economy rebuilds.
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In his speech, Poloz underlined the resource sector’s ongoing “painful and complex” adjustment to low oil prices. He also noted that the non-resource economy is still “moving unevenly toward full recovery” following the trauma caused by the 2008-09 financial crisis.
“Two steps forward, one step backward,” Poloz said. “There’s a resilience and flexibility among Canadians that gives me confidence that we will get through these adjustments and our economy will return to natural, self-sustaining growth.”