VANCOUVER — The head of the Bank of Canada says the central bank will be watching for signs that fallout from trade disputes currently affecting Canada’s manufacturing sector has spilled over into additional industries.
The bank will be looking to see the extent to which weakness from manufacturing may spread to services, employment, consumer spending or housing, Governor Stephen Poloz said Thursday during a fireside chat that was part of the Vancouver Board of Trade’s economic outlook forum.
The U.S. presidential election this year will not solve a plague of uncertainty that has hurt trade and investment around the world, including in Canada, he said, regardless of whether Donald Trump or another candidate is elected.
“Those measures of uncertainty literally have exploded higher,” he said, adding trade channel breakdowns have a “particularly insidious” effect on the world economy by lowering living standards for almost everyone.
“The growth rate of the global economy will remain lower than it otherwise would have been … because you’ve thrown sand into the wheels of global commerce. It’s hard to put your finger on what that’s all costing but we know it’s a very real cost.”
The central bank chief said he’s closely watching the Canadian labour and housing markets, noting the former’s recent weakness is balanced by higher wages, while the latter is being supported by strong immigration numbers and low interest rates.
In a news conference after the event, Poloz played down recent disappointments in economic growth and consumption statistics and said there aren’t compelling reasons to change his outlook for Canada.
“Inflation for almost two years now has been very close to two per cent and the economy has been very close to its capacity,” he told reporters.
“These are not knife-edge things. You need a persistent period of excess supply or excess demand in order to turn that series into a different trend line. We haven’t had anything like that.”
The bank is scheduled to make a rate announcement later this month.
In a report, CIBC chief economist Avery Shenfeld noted a hint from Poloz that the bank might revise upward the economy’s non-inflationary potential growth rate due to upward revisions in the growth trend that were tied to capital spending, as well as accelerated population growth.
An upward revision would increase the measure of economic slack and allow lower interest rates.
“The bank seems to be reserving judgement on two fronts, in terms of whether the trade situation will actually be improving, and on the less optimistic side, whether the recent softness in employment data represents a new trend,” Shenfeld said.
The Bank of Canada has kept its key interest rate target on hold at 1.75 per cent for more than a year even as other central banks around the world have moved to cut rates and loosen monetary policy in response to concerns about a weakening global economy.