Poloz Calls for Patience on Signs Canada Recovery Is Intact

Updated on

 Bank of Canada Governor Stephen Poloz appealed for patience in the face of choppy growth, arguing the economy will rebound over the next couple of years on the back of a U.S. recovery.

While the country’s adjustment to lower oil prices will continue to be uneven and risks remain, policy makers are confident the nation’s export sector continues to heal, Poloz said in a speech Wednesday in Whitehorse, Yukon. He also trimmed his estimate for the negative impact Alberta wildfires will have on second-quarter growth.

“It does seem that our core forecast narratives around the U.S. economy and around Canada’s exports remain intact,” Poloz said. “Continued patience is required, but we have the right to be optimistic.”

The comments, in what Poloz billed as an update to the Bank of Canada’s April forecasts, marks an endorsement of the central bank’s main hypothesis, even in the face of recent trade data that have shown a sharp drop in non-energy exports.

Since reaching a record in January, total exports are down

9.3 percent, including a 9.1 percent drop in non-energy shipments.

Average growth over the second and third quarters will likely be choppy, but should may average out to what the central bank forecast in April, Poloz said.

Not Sustainable

Damage to second-quarter growth from Alberta wildfires would be between 1 percentage point and 1.25 points, Poloz said, slightly better than the estimate he gave in May, which was for a reduction of 1.25 points.

Poloz said the central bank had been warning that surprisingly strong pace of growth in exports at the end of 2015 and early 2016 wasn’t sustainable, particularly in auto exports. Still, the longer-term trends are promising, he said.

“Sure enough, exports have taken a step back in the past couple of months, validating our cautious analysis,” Poloz said. “Even so, the levels of several export categories have shown good progress.”

The U.K. referendum later this month on whether to leave the European Union “poses new risks at the global level that could mean a shift in view,” Poloz said in the speech. He later told reporters that “we are standing ready” and markets will likely react no matter what the outcome is.

Many Canadian firms are reaching their capacity limits and are on the cusp of expansion, Poloz told the audience after his speech, citing executives he has spoken with. He also said it’s understandable they’ve held back on new spending after years of a disappointing global growth.

Lower Dollar

Exporters are seeing a boost from a lower Canadian dollar and better demand from the U.S., which buys three-quarters of exports, Poloz said. America is showing broad signs of improvement even if the last job report was weak, he said. “We’re seeing renewed strength in housing and auto sales, and consumer confidence is near a post-crisis high.”

One downbeat note was for the energy industry. Poloz said that policy makers aren’t confident the recent gains in oil prices will foster a quick rebound. “An extended period of oil prices at recent levels is unlikely to lead to greater investment spending in the Canadian oil patch. Indeed, market intelligence suggests there is further downside risk to investment at these still-low levels.”

(Updates with Poloz’s comments from press conference from 10th paragraph.)