Bank of Canada Governor Stephen Poloz pulled no punches this week. The economy is in bad shape. And it will get worse before it gets better. Tom Walkom writes:
Falling oil and commodity prices have made the overall Canadian economy unambiguously worse, [Poloz] said.
That’s not just because of job losses in the oil-producing provinces. It is also the result of the falling loonie.The decline in the Canadian dollar associated with falling oil prices makes imports more expensive. And that in turn, he said, is costing every Canadian man, woman and child about $1,500 a year.
Poloz noted that the central bank could alleviate this by hiking interest rates so as to attract money into short-term Canadian-dollar assets (thus pushing the loonie up).But that would choke off jobs and investment, he said, ultimately making matters worse.The best solution, he said, is to keep interest rates and the dollar low in order to spur manufacturing and other non-energy exports.This, he acknowledged, “can take years to play out.”
The public will cut Justin Trudeau some slack. But their patience is probably a lot shorter than the scenario Poloz outlined. The Liberal Party has its deficit hawks just as the Conservative Party has.
And Trudeau has promised to balance the books in three years. Will he be spooked by the economy? Or will be put economic news in perspective?
We shall see.