Stephen Poloz awaits sunrise after Canada's long industrial sunset: Don Pittis
Bank of Canada governor sees U.S. economy gaining traction is sectors beneficial to Canadian exports
Not even Bank of Canada governor Stephen Poloz escaped the effects of yesterday's attack on the heart of Canadian democracy.
The bank issued a written report that points to a very long, very slow recovery in the Canadian economy, but because of what the bank called "the incident in downtown Ottawa," Poloz released but did not read his speech. A question-and-answer session was cancelled.
According to bank spokesman Alex Deslongchamps, because Poloz's news conference was scheduled right across the street from the violence on Parliament Hill, the decision to cancel was made "pretty quickly."
"He is safe," said Deslongchamps, speaking from lockdown at the Bank of Canada's Ottawa headquarters. For security reasons, he couldn't say more about where Poloz was during and after the gunfire.
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While the governor was safe, the bank could not guarantee the same thing for the Canadian economy.
What you might call the soaring loonie effect has had a severe long-term impact.
"The good news," Poloz said in the speech he was unable to deliver, "is that the U.S. economy is gaining traction, particularly in sectors that are beneficial to Canada's exports."
But there was bad news, too.
Canada's important energy sector has suffered from falling prices. And despite some recent "help from a lower Canadian dollar," Poloz says non-energy manufacturing and exporting have gone through a long and damaging period of decline while the dollar was high or climbing.
Since 2000, Poloz noted in his speech, many export sectors have shown steady declines, sucking billions of dollars out of Canada's export economy.
"Had the export of these products instead risen in line with foreign demand," said the speech, "they would have contributed about $30 billion in additional exports last year."
Effectively what is happening is that during this long, slow business cycle, factories have closed or cut capacity and the result has been a permanent loss of jobs.
A lot of those jobs are in what we used to call "sunset industries" — manufacturing processes better done abroad by cheap labour or consolidated by automation into more labour-efficient factories. That's what happened when jobs at Heinz and the former Stelco moved from Ontario to the United States.
Poloz fears it will be a long wait for the "rebuilding phase of the recovery," where sunrise industries will expand and finally use up Canada's excess capacity of workers and capital.
We still don't know what those new industries will be, but if we are lucky, they will create sophisticated, high- tech jobs to employ what Karl Marx might have referred to as our "labour reserve army" of educated youth.
But the bank doesn't expect those surplus employees to be put to work until the second half of 2016.
Threats on the horizon
While Poloz's speech did not mention it, yesterday's Monetary Policy Report warned about threatening economic problems on the horizon,
From global economic uncertainty to the damaging effect of lower oil prices on energy investment, Poloz sees potential trouble looming. Closer to home, he worries about the danger of a "disorderly unwinding" in Canadian house prices and its impact on consumer spending.
As the report says, one of the biggest uncertainties is whether the smouldering U.S. economy will suddenly burst into a "stronger-than-expected" economic recovery.
Such a "rekindling of animal spirits" would have positive effects on Canada, says the bank.
Poloz did not get into the messy details, but surging animal spirits would not be entirely good for Canada.
They would push up U.S. bond rates and thus Canadian long-term mortgage interest rates, which are set in U.S. bond markets.
No more 'forward guidance'
Unless Poloz wants to make the market even less stable, short rates set by the Bank of Canada will also have to rise.
The governor made a virtue of the fact that the bank will no longer be giving "forward guidance" on Canadian interest rates.
"Some of you may be wondering why we aren't being more specific about the likely future stance of monetary policy," the governor said in the speech he didn't have a chance to give.
Except for saying it was something the bank would reserve for special occasions, it was a question Poloz didn't really answer in the printed speech.
But it does mean the bank is no longer guaranteeing that it will keep interest rates low.
When he finally gives his news conference, we will have to ask him about that.