Many conditions are in place for “natural” economic growth to return in Canada, Stephen Poloz said at a Vancouver Board of Trade event September 18, his first speech in Western Canada since taking over as governor of the Bank of Canada in June.
He explained that the balance sheets of corporate Canada are healthy, the cost of capital is low and credit “appears to be accessible.”
What has been missing is business confidence, he said. As late as this summer, Poloz noted that companies told the bank through its quarterly business outlook survey that uncertainty about the nature and timing of improving growth prospects were weighing on their investment decisions. But confidence levels appear to be shifting, indicating that various private surveys of business sentiment show some improvement. Confidence has been bolstered by a decline in financial market uncertainty.
“Evidence suggests we are now close to the tipping point from improving confidence into expanding capacity.”
Poloz said that while it’s difficult to predict when business confidence improvement solidifies, when it does, the economy should start seeing rapid improvement.
“Given what firms have been through, it naturally would take a lot of confidence to expand. However, once there is a shift in sentiment, research shows that business decision-makers tend to react and move forward very quickly,” said Poloz.
“Some new data suggest we may be turning a corner.”
The Bank of Canada expects continued improvement in the U.S. economy, which should benefit Canada’s export market, particularly for the machinery and equipment and wood products sectors. In addition, Canadian businesses that diversify their exports to emerging markets should also see significant growth as the economy elsewhere also begins to improve.
“The bank projects a solid pace of further improvement for our exports. This gathering momentum should help lift the confidence of Canada’s exporters, and lead to more, and more broadly based, capacity-building investment.”
