A top Bank of Canada official says the economy is caught in the middle of the U.S.-China trade war— and that further escalation of global trade conflicts remain a “major preoccupation” for its policy-makers.
In prepared remarks of her speech Thursday in Calgary, senior deputy governor Carolyn Wilkins said the deepening dispute between Canada’s top trading partners was a main point of discussion ahead of the bank’s decision this week to leave its interest rate unchanged.
Governor Stephen Poloz, who maintained the bank’s trend-setting rate at 1.75% Wednesday, appeared to be in no hurry to make a move, even as he underlined the improved economy.
In explaining the decision, Wilkins said the Bank of Canada sees growing evidence that the domestic economy has been strengthening since its sharp slowdown over the winter. She said it’s largely on track to pick up its pace over the second half of 2019.
International conditions, however, pose a threat to a Canadian rebound, Wilkins said.
“China and the United States have escalated their dispute, and Canada has been caught in the crossfire,” said Wilkins’ speech to the Calgary Chamber of Commerce.
She also listed other disruptions such as China’s new restrictions on some Canadian agricultural products, which she noted have had direct effects on farmers. A diplomatic conflict has intensified in recent months, leading China to reject shipments of some Canadian goods, including canola and pork.
“If some of these disputes were to be resolved, that would provide a welcome boost to the Canadian and global economies,” Wilkins said.
“But if the disputes were to worsen and become long lasting, the outlook would be quite different…
“Obviously, this remains a major preoccupation for us.”
If the trade environment deteriorates further, economic demand will fall and companies will be forced to wrestle with supply-chain disruptions, she said.
Wilkins did note that Canada’s trade picture has seen positives, such as the U.S. move to drop steel and aluminum tariffs. Their removal is expected to improve the chances of the updated North American free trade agreement being ratified.
On Wednesday, the bank reported that recent economic indicators for Canada have been unexpectedly robust.
The central bank said data has shown the oil sector is beginning to recover, the national housing market is stabilizing and job growth remains strong. The numbers, it added, also point to growth in consumer spending, exports and business investment.
The Bank of Canada said the current interest-rate level was “appropriate.” Moving forward, it said the governing council will pay close attention to developments in household spending, oil markets and global trade.
The Bank of Canada has been cautious with the interest rate due to the accumulation of high levels of household debt, which has built up after years of very low borrowing costs.
Many experts expect the central bank to leave its key interest rate untouched until at least late in the year and perhaps longer. Some have predicted a rate cut will come before the next increase.