Bank Of Canada Official Says Economy Won’t Recover Fully Until 2023
The Bank of Canada deputy governor Paul Beaudry doesn’t expect the Canadian economy to fully recover until 2023, but he says Atlantic Canada’s relatively low Covid-19 caseload has allowed the region to keep many businesses and establishments open.
“The situation in Atlantic Canada has been quite good and that’s been very much added to the benefit of the region,” said Beaudry, who gave a speech and answered questions in an online event Thursday hosted by the chambers of commerce of Saint John, Moncton and Fredericton.
He spoke about the bank’s quantitative easing program, and its efforts to support the Canadian economy throughout the pandemic and achieve the 2 percent inflation target. He also addressed the bank’s decision to maintain its benchmark interest rate at 0.25 percent.
Quantitative easing is a monetary policy used by central banks like Bank of Canada in which they buy a large amount of government bonds or other financial assets. The goal is to push money into the economy to help it grow.
Beaudry said the bank has bought over $180-billion worth of bonds since the quantitative easing program was launched in March.
“But despite all these purchases we made. It is worth noting that relative to the size of the Canadian economy, the value of assets we hold is relatively low by international standards, only about two-thirds of that of the Bank of England, or the U.S. Federal Reserve,” he explained.
So far, he said the bank’s efforts “have had their intended effects.”
“Financial markets are functioning much better than they were when we began our policy actions in March, our balance sheet has been stable since July,” he noted.
Beaudry said Canada’s third-quarter results, with economic growth of nearly 9 percent, indicate that there would be a “strong rebound” once the economy reopens. The growth was just slightly below the 10 percent Bank of Canada expected.
“The overall level of economic activity remains largely on track with our expectations, reflecting some historical revisions to the gross domestic product, and a little bit more momentum heading into the fourth quarter than we had anticipated,” he said. “It’s also worth noting that stronger global demand is currently pushing up prices for most of our commodities, including oil.”
News of a vaccine coming offers a light at the end of the tunnel, but there are many uncertainties around that, still, he said. Beaudry worries the second wave of Covid-19 would also leave more scarring in the economy.
He gave the example of small businesses that have made their way up to now but may decide to close permanently if things get harder.
“We don’t want to have all these businesses that are close and gone out of business,” he said. “And that’s the type of scarring that a second wave might hit a whole set because, again, the reality here is up to now, although a lot of businesses are struggling and having difficulty, the surprising thing is we haven’t had too many bankruptcies and too many insolvencies.”
That doesn’t mean that many businesses are not on the verge of falling, and the second wave could just push them off the cliff, he said.
“It’s exactly what scares us is this new Covid wave could be really creating some of that scarring, which will need an extra push to help the economy get back,” he added.
Beaudry said the second wave of the pandemic will weigh on Canada’s economic activity through to the first quarter of 2021, and “represents an important downside risk further out if the situation becomes much worse.”
It could take a while for the hardest-hit industries, like tourism and accommodation, to return to normal. It would depend on factors like consumer confidence to return to dining out or traveling.
The bank is hoping low-interest rates and a quantitative easing program would help individuals and businesses borrow at a very low cost. Along with federal supports, the bank hopes it could help the economy return fully, which it expects will happen in 2023.
“We shouldn’t be increasing these rates at least until 2023, that’s giving a bit of assurance there,” he said. “My impression is, if [the small businesses] can hold on, the recovery will be there. I do think this vaccine will be doing their job but we still have a good six months or more to kind of get through before it’s really kind of working way out.”
Beaudry also expects to see immigration pick up as the economy also rebounds. That would include more international students coming in and staying in the country, he says.
“It’s a very important part of our overall growth and how we’ll adjust in the future. But I’m confident that that will pick up back within a year or so.”
Inda Intiar is a reporter for Huddle. Send her story suggestions: [email protected]