MNI POLICY: Ex-StatsCan Cross: BOC Makes Economy Shaky on Debt

By Greg Quinn

     OTTAWA (MNI) - Low Bank of Canada rates have created an indebted economy

that is vulnerable to a global slump while leaving long-run growth stuck at the

lowest pace since the Great Depression, a former top Statistics Canada official

told MNI.

     The BOC is also unlikely to make changes to account for inflated asset

prices when it finishes reviewing a 2% inflation target for 2021, Philip Cross

said in an interview Wednesday.

     Governor Stephen Poloz signaled last week he may cut his 1.75% interest

rate if global weakness keeps curbing domestic growth, a shift from last year

when he resisted a wave of rate cuts citing imbalances in household finances.

That move would repeat mistakes of the last decade which have boosted Canada's

debt load past 300% of GDP, a burden spread between governments, consumers and

companies, Cross said.

     "We basically begged people to go into debt," and the BOC keeps coming back

to a "failed policy," Cross said. He is the Munk Senior Fellow with the

Macdonald-Laurier Institute and formerly StatCan's Chief Economic Analyst.

     "If their idea of solving it is to keep the interest rates low, and that's

the very source of the problem, then that just proves my point, they really

don't get it," he said.

     Besides starting to normalize interest rates, the best way to revive growth

and help cut debt loads would be supply-side policies that encourage business

investment and boost worker productivity, he said. That's something governments

who have embraced deficit spending should bear in mind too, according to Cross.

     GDP growth over the past decade has been as "lethargic" the period

following the Great Depression, he says.

     The MLI's leading indicator suggests growth will "sputter over the

near-term" after nearly stalling late last year.

     Another sign that low rates aren't getting to the root of Canada's problem

is the persistent weakness in exports and investment even with a currency

trading around 75 U.S. cents, he said.

     Meanwhile, Cross cited BIS data showing Canada's debt load reached 306% of

GDP in the second quarter of last year, higher than the 272% average for

advanced economies.

     "High debt levels across households and governments mean Canada is quite

vulnerable to a downturn in the global economy," Cross said.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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