This morning, Bank of Canada Governor Stephen Poloz gave tips on how Canada can build up business confidence at the Oakville Chamber of Commerce.
He stressed what “happens to business in Canada matters to the Bank of Canada…In order for us to do our job properly [and] promote the economic and financial welfare of Canadians, we need to understand all the dynamics that feed into the Canadian economy.”
Read: Poloz: Canada has been served (2003), for more on Poloz’s past views on Canadian business challenges
First, he says the bank aims to keep inflation low and predictable, adding, “Our flexible inflation-targeting framework is the best contribution monetary policy can make [since] Canadian households and businesses can make decisions about their financial futures with confidence.”
Further, he says “the average rate of inflation has been very close to our 2% target over the past couple of decades. Even during the global economic and financial crisis, [it] didn’t waver.”
Poloz reminds Canadians inflation can’t fall above or below this target. “When inflation falls below and interest rates are correspondingly low, there is little room for conventional monetary policy to respond to negative shocks.”
He adds, “When inflation is above target, the erosion of purchasing power becomes significant and uncertainty about future prices makes it hard for households and businesses to [manage finances].”
The bulk of his speech focuses on how businesses are surviving as the country recovers from the so-called worst recession since the depression. During 2008-2009, Canada lost “432,000 jobs…and GDP fell 4.2%. The unemployment rate spiked to 8.7%.”
He adds, “During a normal growth period in Canada [following a recession], there is a steady increase in the number of businesses in operation…But [currently] there’s been limited net creation of businesses, [with] Canada’s exporters…particularly hard hit. The group most profoundly affected has been manufacturing exporters, whose ranks have continued to shrink.”
To complicate matters, Poloz says “the number of American companies to trade with [has dropped]…The related drop in the number of Canadian exporters means Canada’s export sector has lagged. Our annual exports are more than $100 billion lower than would be typical at this point in a recovery cycle.”
With that said, he’s found “the entrepreneurial spirit is alive in Canada. Some of the decline in exports reflects the [way] Canadian firms are responding to the U.S. slowdown by pivoting their products to the faster-growing segments of the Canadian economy. Others became more competitive through restructuring or finding a niche adjacent to their traditional market.”
So far, he says keeping inflation low is helping facilitate business growth, along with the “the gathering momentum in foreign demand, especially in the United States, [which] should help lift the confidence of Canada’s exporters.”
Poloz adds it’s “critical for Canadian firms to boost their investment to expand their productive capacity” since consumers have been spending, better managing debt and doing their part. Read his speech.
Canadian Press says some analysts have lately started revising their economic forecasts. It says RBC recently raised its estimate for 2012 economic growth to 1.9%, predicting growth for 2014 will be about 2.9%.