OTTAWA — The Bank of Canada’s senior deputy governor says there’s still uncertainty around the long-hoped-for rebound of the country’s crucial non-resource export sectors.
In a speech Thursday, Carolyn Wilkins said the future of these exports is not entirely predictable despite some encouraging signs in the numbers from July and August.
“Uncertainty lingers,” Wilkins said in the address she delivered mostly in French at the Universite du Quebec a Trois-Rivieres.
“This uncertainty comes in part due to the future growth prospects for investment in the United States. It is also possible that the effect of lower oil prices on the American economy is not as positive as anticipated.”
The Bank of Canada has been waiting for the country’s non-commodity exports to rebound ever since the collapse of oil prices and the dollar’s slide a couple of years ago. Many are banking on the sector’s eventual pickup to help lift the stubbornly sluggish economy.
Wilkins noted that while the central bank has seen “a clear upward trend” in non-commodity exports over the last six years, the weaker dollar’s influence on their growth rate has mostly faded.
She recalled Thursday how Canada’s non-resource exports underperformed in the second quarter of 2016, which was partly due to a period of weaker-than-anticipated growth and investment for the country’s most-important trading partner: the U.S.
Canada, she added, also continues to face stiff competition from other countries like Mexico, where she noted the currency fell further than the loonie.
“It will take time to fully determine which factors affecting exports are temporary and which ones are permanent,” Wilkins said.
She did, however, say that Canada has seen improvements in its services sector, which accounts for about 70 per cent of the country’s economy and 80 per cent of its jobs.
Wilkins said that some high-value-added sectors have “grown quite nicely,” including cultural and air transportation industries.
Canada exports about $100 billion worth of services, or about one dollar out of every six from total exports, she said.
Still, TD economist Brian DePratto wrote in a research note to clients Thursday that the speech suggests the Bank of Canada is maintaining a “more cautious view of Canadian export performance (and by extension the overall economic adjustment process).”
“Indeed, today’s speech seems to be one that could be pointed to down the road as an ‘I told you so’ should the Bank hold or decide to cut rates,” DePratto wrote.
Going forward, Wilkins said she expects several factors to help feed stronger growth in Canada, including the federal government’s commitment to spend an additional $25 billion over two years on infrastructure projects and to increase child-benefit payments for families.
“The effects of these budgetary stimulants will become more important as the year progresses,” she said.
She also touched on the bank’s financial stability concerns, including the high debt levels of Canadian households and sizzling housing markets.
Wilkins said she thought Ottawa’s rule changes announced this week, which seek to slightly limit borrowing and to cool housing markets, will help mitigate some of these risks.