“Over the past 150 years […] Canada has progressed to become one of the wealthiest and happiest countries in the world,” says Bank of Canada Governor Stephen Poloz. “The average income, adjusted for inflation, is about 20 times higher today than it was at Confederation.”
How has this occurred?
To answer that question, Poloz offered a history lesson in his latest speech. He also made the case for a policy mix that is frequently promoted by the federal government; the feds are aiming for openness to more foreign investment, immigration and free trade.
Read: Global growth hinges on fiscal stimulus: OECD
Speaking at Durham College in Oshawa, Ont., Poloz says these three ingredients have produced positive economic results in the past, citing the early 1900s and the post-Second World War era. He also warned that when Canada turns inward by imposing heavy tariffs, for example, that rarely leads to success.
Says Poloz: “Protectionism does not promote growth and its costs are steep. First and foremost, higher tariffs and other trade barriers make things more expensive for people and limit their choices, while lower tariffs make things cheaper and increase choice. Specific companies might benefit from protectionism, but that imposes a cost on everyone else.”
Read: How the Trump trade is running out of juice
Poloz also highlighted the need to attract foreign cash to help fund major infrastructure projects. In his speech, he says, “Because of our vast geography and relatively small population, we have always had major infrastructure needs. Historically, our domestic savings base has not been large enough to finance these infrastructure projects, so we have needed foreign capital.”
He concludes, “Our history shows that it takes a world to raise a nation, and nation building works best in an environment of openness,” even though that can be hard to remember in times of stress.
Poloz concedes that “specific industries have borne the cost of change in a very difficult and concentrated way,” highlighting the impact of automation. But, to progress, “we can expect this to continue,” he says.
In a research note, Nick Exarhos of CIBC Capital Markets says, “The Canadian economy has a bounce in its step, but the BoC isn’t changing its tone–at least not yet.” Poloz’s speech “had little in the way of monetary policy implications, other than highlighting concerns [related to] the potential damage a turn inward in U.S. trade policy could have on Canadian growth,” but “it appears any substantive changes will be reserved for the mid-April [monetary policy report].”
To raise or not to raise rates? What the BoC must consider