MNI POLICY: BOC's Wilkins: Trade War is Recovery Wild Card>

By Greg Quinn

     OTTAWA (MNI) - Bank of Canada Senior Deputy Governor Carolyn 

Wilkins said the threat of a prolonged global trade war is the ``wild 

card'' to an economic recovery that still requires stimulative interest 

rates. 

     Wilkins said future decisions on a policy rate, held at 

1.75% on Wednesday, will focus on trade disputes, oil markets and 

domestic household spending. Canadian business activity is being 

held back by global trade fights and her own country's bilateral 

disputes with the U.S. and China. 

     Most of Wilkins' remarks Thursday reiterated the outlook 

expressed in Wednesday's interest-rate decision, including the key 

phrases that stimulus ``remains appropriate'' and policy makers stay 

``data dependent.'' Some investors are betting on a rate cut later this 

year while most economists say the BOC is on hold in 2019. 

     The growing evidence that Canada's economic growth will accelerate 

over the rest of this year must be weighed against the longer-term risk 

of worsening trade conflicts such as between the U.S. and China, Wilkins 

said. ``This remains a major preoccupation for us,'' she said about the 

risk of protracted trade wars. 

     Business investment in Canada will expand gradually led by 

non-energy companies focused on new technologies, while oil and gas 

producers may cut investment by a further 20%, she said.  

Here are some other highlights from her speech in Calgary: 

     - Business investment as a share of Canada GDP will remain flat 

over the BOC's projection horizon.

     - While job growth is supporting consumption, business inventories 

have increased sharply and economic data may also be choppy because of 

recent flooding and wildfires in parts of Canada. 

     - Policy makers discussed the flat or inverted yield curves in 

some markets and whether it's a signal about economic prospects or 

investor demand for long-term assets. 

--MNI Ottawa Bureau; Greg Quinn, 613-314-9647; greg.quinn@marketnews.com 

     [TOPICS: M$C$$$,MACDS$]