Evelyn Jacks: The Promise of Economic Potential

Agathe Côté, Deputy Governor of the Bank of Canada, spoke of one of my favorite subjects – the Promise of Potential – at the CFA Society Winnipeg/Manitoba Chambers of Commerce in Winnipeg on October 29.

We at the Knowledge Bureau like to think about the promise of potential by measuring knowledge outputs of tax and financial advisors. The Bank of Canada, on the other hand, reviews its estimates of potential output growth in our economy every October. This measure also helps us measure inflationary pressures, providing a key to understanding our future standards of living.

To make this more relevant, the Deputy Governor asked her audience to consider this: if potential output were to grow by an extra percentage point every year for the next ten years, the cumulative increase in income would be almost $30,000 for every Canadian. That’s significant in embellishing lifestyle, particularly in retirement.

At the moment, the report card on Canada’s economic growth is tepid, particularly in the shorter term. Looking ahead, the Bank sees the economy gaining momentum but not until next year and 2015; however, there is still uncertainty and risks around the outlook, said the Deputy Governor.

“The results of the Bank’s most recent analyses tell us that the output gap in Canada overall is sizable and that the growth rate of potential is likely to remain fairly steady at around 2 per cent in coming years,” said the Deputy Governor. “As a result, the Bank has judged that the substantial monetary policy stimulus currently in place remains appropriate and therefore to maintain the target for the overnight rate at 1 per cent.”

It turns out that my home town of Winnipeg is well positioned in its Promise of Potential, according to the Deputy Governor. It has a productive and skilled workforce, diverse industry, healthy investment in research and development, and an unemployment rate that is consistently among the lowest in Canada. This province, in other words, has the necessary tools to build productivity and prosperity, said the Deputy Governor.

Also noted in the speech: potential economic growth faces the obstacle of an aging demographic that typically contributes negatively to labour productivity, while at the same time, Canada cannot count on commodity prices with certainty to provide the same boost to income growth in the future as they have in the recent past.

It’s Your Money. Your Life. Taking a close look at how you manage money, debt, and taxes is a good idea as part of your year-end planning activities to maximize the Promise of Potential in family finances. It can also help you focus on where your personal productivity can make the biggest difference in the current economic cycle and how the productivity of your investments will add positively to your financial future.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.