Canadian economy carrying untapped potential, Bank of Canada Governor Poloz says

Postado Março 13, 2018

In a speech today at Queen's University in Kingston, Ont., Bank of Canada governor Stephen Poloz used Quebec's child-care model as one way to show how Canada could unlock some of the considerable untapped potential in its labour force. "It means Canada may be able to have more economic growth, a larger economy, and therefore more income per person, without generating higher inflation". CIBC expects just one more hike this year from the central bank. The Canadian dollar, which has been the worst performing major currency in the world this year as investors pared expectations for rate increases, fell another 0.7 per cent to $1.292 per US dollar at 10:33 Toronto trading.

Inflation has been picking up in recent months, but still remains slightly below the central bank's 2 per cent target.

"There are likely to be significant economic benefits associated with allowing the economy to find its way to a higher, more productive economic equilibrium", Mr. Poloz said.

"We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur", Poloz said.

In a lecture at Queen's University, Governor Poloz said that the Canadian economy is now in the phase of the economic cycle where companies need to expand capacity to meet rising demand. "Obviously, this is a phase worth nurturing".

"If the economy builds more supply than usual, that will put downside risk on inflation", he said.

For example, adding half-a-million workers to the labour pool would boost Canada's potential output by 1.5 per cent, or $30-billion a year, according to estimates by the central bank.

He credited the province's child-care program for raising prime-age female workforce participation from 74 per cent 20 years ago to about 87 per cent today.

"If we could simply bring the participation rate of prime-age women in the rest of Canada up to the level in Quebec, we could add nearly 300,000 people to our country's workforce", said Poloz, who noted the central bank has no role in implementing specific policies created to break down labour-force barriers. The government also said it would create 40,000 new subsidized child care spaces.

The central banker cited a number sources of untapped labour market slack, including youth participation rates that still seem low based for this stage of the cycle. Mr. Poloz said the participation rate of 15 to 24-year-olds is still below the level experienced before the last recession.