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Time to heal business confidence, consumers have done their part: Poloz

New Bank of Canada governor says missing US link is now coming in.


June 20, 2013
by The Canadian Press

BURLINGTON, Ont. – Newly installed Bank of Canada governor Stephen Poloz is trying to rally business toward the kind of spending he says is needed to bolster the economy, while giving no signal about any change in interest rate policy.

Poloz preached the virtues of “stability and patience,” saying the central bank’s long-standing target of low, stable inflation remains “sacrosanct,” in his first speech since taking over from former BoC governor Mark Carney.

“We have already set the table: interest rates are low, there’s plenty of stimulus in the system,” Poloz said at a news conference after a speech to the Oakville Chamber of Commerce. “What I’m picking up from my conversations is uncertainty, a lack of confidence.”

Canadian companies have, however, been looking for opportunities in emerging markets, and those markets are growing “reasonably well,” he said.

“The missing link has been the US economy, and that link is coming in. With that combination we think we’ll see the kind of foreign demand that we need to cross the line into a more confident mindset.”

In the meantime, Poloz attributed Canada’s relatively good economic fortune through the downturn to households that took on personal debt.

“Given the circumstances, it was a good thing that households had the capacity to expand their spending – this provided the necessary cushion from the worst effects of the global contraction,” he said in his speech.

Dawn Desjardins, assistant chief economist at RBC, said Poloz’s speech maintained many of themes he presented to the House of Commons finance committee earlier this month, and didn’t provide any indication of a possible change in interest rates.

“To the extent that the Canadian economy follows the script, I don’t see a significant change of what they’re going to say July 17,” she said in an interview. “To be sure, Poloz’s speech displays that his experience at the Export Development Corporation will play a part in shaping his perspective on the outlook for the economy.”

“That said, he remains firmly committed to the Bank’s mandate of price stability.”

This spring, Canada’s central bank lowered its 2013 growth forecast by half a point to 1.5% and announced in May that its key lending rate would remain unchanged at 1%.

The bank has estimated 2014 economic growth will be 2.8% followed by 2.7% growth in 2015.

Poloz noted that “since the onset of the recession, there has been limited net creation of businesses” and exporters have been particularly hard hit, with exports more than $100-billion lower than expected at this point in the economic recovery.

The sustained recession knocked many exporting businesses out of operation, but other areas of the economy are rebuilding.

“The good news is that the balance sheets of corporate Canada are healthy and the capacity to invest exists,” he said.

Some economists have begun revising Canada’s growth outlook upward.

Royal Bank of Canada raised its estimate for 2012 economic growth to 1.9% Wednesday morning, and said growth for 2014 will be about 2.9%.

The Bank of Montreal also released its small business confidence report this week, which found that 62% of business owners have a positive outlook for 2013, especially those in Atlantic Canada and BC.

©The Canadian Press