OTTAWA — Canada’s central bank governor Stephen Poloz has left little to the imagination on the current state of the economy: It’s looking bleak and will likely get bleaker before it gets better.
We’ve already seen export activity and business investment slip this year. As a result, the overall economy has wobbled into the second quarter — and could end up negative overall — along with inconsistent and often weak job creation.
But there are other concerns for Poloz, as well, including still-low oil prices and the Alberta wildfires that have cut deeper into the province’s output.
“The data are volatile,” he told reporters in Ottawa, following a weekend speech to the Canadian Economic Association. But, he added later, “The economy isn’t as volatile as the data, that much we know.”
“Views in the market — about what policies might do — change virtually every week,” Poloz said. “So, our job is to continue to do our analysis to see our way through that volatility and focus on getting the trends right.”
Trade is one example of a volatile sector. After two months of declines, Canada’s exports rose 1.5 per cent in April, with imports increasing by 0.9 per cent — narrowing the country’s trade deficit to $2.9 billion from a $3.2-billion shortfall in March, according to Statistic Canada.
Meanwhile, Poloz will highlight the growing threats in the real estate market and household debt — with Vancouver and Toronto again playing a major role — on Thursday, when he releases the bank’s semi-annual Financial System Review, an in-depth look at the key domestic risks to Canada’s financial system, as well as global concerns and the possible impact on the domestic economy.
The twice-yearly review will be followed by a Poloz news conference on the same day in Ottawa, and come ahead of Friday’s employment report — this one for May — from Statistics Canada.
While U.S. employment disappointed in May — growing by just 38,000 positions when 164,000 new hires were anticipated — monthly jobs data in Canada continues to be widely unpredictable, often swaying between big jumps and equally large declines.
In the case of April’s labour force survey, the overall reading was flat, keeping the jobless rate at 7.1 per cent. What is for sure, though, is that the recent wildfires in Alberta have aggravated the collapse of the provincial economy and widespread layoffs that followed the global plunge in oil prices.
“Since this (labour force) report is for May, there’s lots of uncertainty due to the unknown impact of the wildfires,” economist Benjamin Reitzes, at BMO Capital Markets, said in a note to investors.
“StatsCan hasn’t told us how they’ll treat the fires, so a big negative is not out of the question,” he said. “No matter the print, it will be tough to be any more disappointing than last week’s U.S. payroll print,” which appears to be frustrating Federal Reserve chairwoman Janet Yellen’s plans to relaunch interest rate increases in June.
But it’s also been a tough few months for Poloz. With the federal government’s promised fiscal surge in stimulus spending slow to get off the ground, the governor is in a wait-and-see mode as the economic numbers — mostly disappointing recently — continue to roll in.
The Bank of Canada’s main policy lever is its trendsetting interest rate, now at 0.5 per cent, which is used to nudge the rate of inflation toward a two-per-cent target — the midway point of a one-to-three-per-cent comfort range.
“What we’re looking at is a situation where the mix of policy going forward, if it has a little bit more fiscal (than monetary) … that is preferable to having lower interest rates and no change in fiscal (policy),” Poloz told reporters Saturday in Ottawa.
“Interest rates don’t deliver much when you’re that low already,” he said. “That shift in (policy) mix is a small one but a very positive one.”