Bank of Canada governor Stephen Poloz said Thursday the global economy appears set for continued slow growth and that low global interest rates are likely to persist.
Speaking to the Empire Club in Toronto, Poloz said slowing population growth is holding back economic growth and gains in productivity aren’t happening fast enough to offset the change.
And, in the near term, trade conflicts are threatening to reverse some of the productivity gains made through globalization.
“Tariffs on imports are forcing companies to dismantle supply chains and create new ones that are likely to be less efficient,” he said, according to a prepared text of his speech released in Ottawa.
“At the same time, uncertainty about the future of trade policies and critical institutions like the World Trade Organization is having a more insidious effect — companies have cut their investment plans, which means less potential economic growth in the future.”
Poloz, who also released a discussion paper Thursday examining many of the same issues, said the increased use of artificial intelligence and the fourth industrial revolution bring the potential for productivity gains in the future, but those gains are not yet being seen in the economy.
“Judging from past experience, these productivity gains could be slow to arrive,” he said. “Computers went into widespread use during the 1980s, but a surge in productivity growth did not emerge until the period from 1995 to 2005.”
The Bank of Canada kept its key interest rate on hold last week at 1.75 per cent, where it has been set for more than a year.
The Canadian central bank has stood out from many of its global peers that have moved this year to loosen monetary policy and cut interest rates to offset a slowing global economic growth.
In keeping its overnight rate target on hold, the bank said the potential of a global recession was waning, but ongoing trade conflicts and related uncertainty still weighed on the global economy and remained the biggest source of risk to its outlook
Poloz said low global interest rates could result in continued growth in household and government debt and that has consequences.
“Experience shows that high debt levels can amplify the impact of a shock on the economy,” he said.
Poloz announced last week that he would step down as governor of the Bank of Canada when his seven-year term ends in June 2020.
In the coming year, he said the central bank will continue work on the renewal of its inflation-targeting agreement with the federal government which is scheduled for 2021. The Bank of Canada aims to keep inflation at two per cent by adjusting its key interest rate target.
Poloz said the central bank is expanding its efforts to hear outside views as part of its review process and plans consultations with a wide range of groups, including businesses, labour organizations, academics and other central banks, as well as round tables with civil society stakeholders.