Momentum is Coming. . .But Not ‘Til Next Year

Tiff Macklem, Senior Deputy Governor of the Bank of Canada, told the Economic Club of Canada in Toronto last week that the Canadian economy needs annual growth of at least 2.5% to put a meaningful dent in the remaining slack in the Canadian economy.

But to do this requires more exports and business investment. That could be tough in an uncertain world. An improving global outlook, particularly for advanced economies, should boost our exports, he noted, but to benefit, Canadians must do three things: strengthen our competitiveness, develop new markets and finally, secure our position in global supply chains.

The good news? Near-term growth now looks a little less choppy than initially projected: we are now expecting growth in the third and fourth quarters of this year to be in the 2 to 2½ per cent range. Then, expect the economy to strengthen next year as the rotation to exports and investment gains momentum, he said.

There is a risk that this rotation is delayed further. At the same time, some recent surveys and other evidence, including the pick-up in firm creation, suggest that firms are becoming more optimistic. And once the sequence of stronger exports, rising confidence, increased investment and stronger productivity is launched, it could well gain traction faster than expected. We will be monitoring this dynamic closely.

With inflation subdued, monetary policy remains highly stimulative to provide time for the recovery in exports and investment to take hold.

This is not the first time we have faced the challenge of restoring our exports against shifting global tides. From beaver pelts to building materials, we have experienced plunges in the markets for our goods. We recovered by developing new goods and services and entering new markets. There can be no doubt that we have the entrepreneurial spirit, the skills, the educated work force and the expertise to compete successfully in the global marketplace. But that does not make it easy.