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Confidence in Canadian economy increasing: BoC

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Confidence in Canadian economy increasing: BoC

The Canadian economy is on the verge of returning to normal growth, according to Bank of Canada Governor Stephen Poloz. Describing the current situation as a “tipping point,” Poloz says the economy is nearing a breakthrough that will usher sustained growth without the risk of higher inflation.

The central bank governor was confident in his country’s economic outlook, citing a stronger business climate and greater employment opportunities than a year ago. Canada now has 40,000 more firms than a year ago, according to Poloz; higher business confidence and growing international demand will keep the economy level in 2014 and beyond.

The Canadian economy has had mixed results in 2013. Job growth has been choppy, and demand for Canadian goods and services has faced the ebb and flow of a volatile global economy. Back in March Statistics Canada reported a staggering 54,500 job losses that month, a pace that would eventually boost the unemployment rate by 0.2 percentage points. However, employment growth has averaged 12,000 over the previous six months, leading to the creation of more than 59,000 jobs in August. The unemployment rate fell back toward 7.1 percent last month.

At the same time, economic expansion in China appears to have recovered from a brief slowdown, suggesting the world’s second largest economy could fuel demand for energy and other commodities, of which Canada is abundant. Earlier this month’s China’s Statistics Bureau reported retail sales advanced 13.4 percent year-on-year, while industrial production advanced 10.4 percent.

Canada’s economic future will be tied to broadening US recovery, a sentiment shared by Governor Poloz. Canada’s export market will benefit from growing business and residential investment south of the border, which could help spur Canadian equipment makers. In this sense, the prospect of a Federal Reserve bond tapering is to be welcomed, as it suggests waning downside risk for Canada’s largest and most valuable trade partner.

Earlier in the summer Bank of Canada Deputy Governor John Murray reassured market participants that Canada has more to gain from a stronger US economy than any potential downside risk that might come from a shift in US policy. However, Canada will have to wait at least another month to see if that’s indeed true, following the Fed’s post-FOMC decision to postpone asset tapering in September.

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