Former Bank of Canada governor Stephen Poloz delivers a keynote address to a business conference in Ottawa, on Nov. 24.Adrian Wyld/The Canadian Press
The full effects of interest rate hikes have yet to be felt – and will be “even more powerful” than many anticipate, said former Bank of Canada governor Stephen Poloz Thursday in a speech about ways Canada can chart a path toward economic growth during uncertain times.
Speaking at a conference hosted by Western University’s Ivey Business School in Ottawa on Thursday, the former governor warned today’s economy is more sensitive to interest rates than it was 10 years ago.
“Does anybody here think the sensitivity of the economy to interest rate movements is less today than it was five or 10 years ago?” Poloz asked. “I think it’s more sensitive today than it was before.”
Poloz estimates annual inflation will fall to about four per cent on its own as external factors, such as higher commodity prices, ease. Statistics Canada’s most recent annual inflation rate sat at 6.9 per cent in October.
He said policy action will need to do the rest of the work to get inflation back down to the central bank’s two per cent target.
“I think that the actions that are being taken to get us there will turn out to be even more powerful than a lot of people think,” Poloz said, citing higher debt loads in the Canadian economy as a vulnerability.
The former governor is the chair of the Lawrence National Centre for Policy and Management, an independent think tank hosted at Ivey.
Poloz began his remarks by sharing his thoughts on the drivers of high inflation and where prices are headed. His speech also offered a set of recommendations on how Canada can improve long-term economic growth during volatile times.
He said the think tank will offer a summary of the recommendations to Finance Minister Chrystia Freeland next week.
Poloz finished his seven-year term as Bank of Canada governor a few months into the COVID-19 pandemic. Since then, the central bank has dramatically shifted gears from the extraordinary stimulus measures of 2020 to rapid monetary policy tightening.
The Bank of Canada began raising interest rates in March to clamp down on rising inflation. Since then, the central bank raised its key interest rate six consecutive times, embarking on one of the fastest monetary policy tightening cycles in its history.
Its key rate currently stands at 3.75 per cent and is expected to rise again next month.
The aggressive rate hikes are expected to slow the Canadian economy significantly. And though many economists are cautiously optimistic that the slowdown won’t be severe or long-lasting, labour groups in particular have been concerned about the consequences of a potential recession.
Is the Bank of Canada overshooting with its rate hikes? “It’s impossible to say,” Poloz said in an interview.
Economists estimate interest rate hikes take one to two years to take full effect in the economy. That lag makes it difficult to judge whether rate hikes are too much or too little, the former governor said.
Poloz said trying to slow inflation with interest rate hikes is like trying to stop a car with bad brakes.
“It takes a long time to actually slow down and so you stand on the brake really hard. Well, then you’re going to cause an accident too,” he said.
Though high inflation has persisted longer than the Bank of Canada’s initial projections, Poloz defended the use of the word “transitory” to describe inflation pressures, noting in his speech that international contributors to inflation such as supply chain delays are already dissipating.
“In other words, the part of inflation that is externally driven, really is transitory. It’s OK to use the word transitory,” he said.
However, the former central bank governor says it takes time for that development to be reflected in the annual inflation rate.
Bank of Canada governor Tiff Macklem notably called inflation “transitory” – meaning temporary – when it first started rising.
Since then, he’s backed away from that characterization and has emphasized that the domestic economy is overheated and inflation won’t return to target without action from the central bank.
While high inflation has come to the forefront of economic policy discussions, many economists are concerned about what Canada is – or isn’t – doing to promote long-term growth.
During his speech, Poloz made the case for government policies that promote stability and clarity for businesses. The less uncertainty there is about trade policy and projects, for example, the more businesses will invest in their operations and improve their productivity, he said.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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