Poloz Says Export Puzzle Prompted Canada Downside Risk Language

  • Central bank chief believes in fundamental economic story
  • Longer U.S. investment lull may have permanent export impact

Bank of Canada Governor Stephen Poloz said he’s been puzzled by the nation’s export under-performance, and it’s this "lack of understanding” that prompted his central bank to flag downside risks to the nation’s economy.

Speaking to reporters in Washington on Saturday, Poloz said the Bank of Canada is looking more closely at the causes of this year’s weakness in exports, which have resulted in slower-than-expected growth. The central bank will have more to say about the issue at its next rate decision Oct. 19, Poloz said.

“It’s our lack of understanding frankly that causes us to say something like -- well in the September press release -- that it does look as though there is a downside risk to our profile for projecting inflation,” said Poloz, who was in Washington to attend annual meetings of the World Bank and International Monetary Fund.

Poloz has been appealing 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. Recent communications from the Bank of Canada however have been more downbeat as the export recovery has disappointed. Exports have “lost ground” and the balance of risks to inflation have “tilted somewhat to the downside,” the bank said in the statement accompanying its Sept. 7 rate decision.

Positive Developments

Poloz said he still believes in the “fundamental story” that the economy is adjusting to the oil price shock and companies are poised to pick up investment and hiring. The Canadian economy probably has another year of “visible adjustments” to the oil price shock, which have been masking other positive developments in the economy.

“Beneath the surface the original story is happening,” said Poloz.

Still, he acknowledged that the run of poor export data this year doesn’t “seem to fit the story.”

“We tried to track our narrative through the bumps and wiggles but then as the downside wiggle progressed five months in a row, and deep, that causes us to look more deeply into that,” he said.

Poloz cited a lull in U.S. investment which -- if long-lasting -- will have a permanent impact on Canadian exports.

“If you could begin to be concerned that you’ve misunderstood something then this is just our way of letting you know we’re concerned,” Poloz said.

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