Poloz: Canada Econ In 'Sweet Spot' But Labr Mkt Needs Catch Up

By Courtney Tower

     OTTAWA (MNI) - Canada's economy is at "a sweet spot" in hitting full

capacity operations but a chief concern is that this has not yet encouraged the

creation of new firms to boost productivity and employ more workers, Bank of

Canada Governor Stephen Poloz said Wednesday.

Although the economy is on track to record strong 3.1% growth in 2017 and

reduced but sustainable and over-capacity 2.1% growth in 2018, Poloz reaffirmed

to a press conference that the present 1.0% BOC policy interest rate stimulus

still is appropriate.

Because of large risks and uncertainties, most notably United States actions

against Canadian exports and the threat of abandoning the North American Free

Trade Agreement (NAFTA), and despite the fact that the output gap is closed, the

BOC said in a quarterly analysis Wednesday that it will be cautious in future

about further rate hikes.

These likely would have to occur at some time, but the signal was that they

would not occur until next year. There is one date left in 2017, December 6th,

for the BOC to announce a change or stand pat decision on the key rate.

Prominent among the uncertainties is the future of NAFTA, the Monetary Policy

Report (MPR) said. Yet, as Poloz told reporters, "the range of possibilities

(for NAFTA's future) is too large for us to analyze." The possible effects on

the Canadian and global economies could not as yet be modelled, but they headed

risks and uncertainties facing business investment, employment, productivity.

If the economy continues to do well, less monetary stimulation will likely be

needed, he said. However, as he has said often before, there is "no

predetermined path" ahead for future rate policy.

Although employment growth has been strong, the labor market is not catching up

to full capacity. This, despite the fact that about 75% of the manufacturing

sector presently operates above capacity and employers "are ready to invest." 

Uncertainties and risks hold them back.

When they invest, what Poloz calls "the sweet spot" occurs, he said, with more

labor employed and more growth generated. But the BOC wants to "be sure that

that process is taking place."

The "sweet spot" reference arose again when Poloz repeated that the economy is

operating at full capacity but that there remains more room for the labor market

to grow and catch up.

A problem here is that the risks and uncertainties are holding back new firm

creation. "We are definitely not producing new companies the way we should," he

said. 

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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