Now in his last few months of service, BoC governor Poloz warns of possible future turmoil
Bank of Canada governor Stephen Poloz has stated that the global economy appears poised for sustained – if slow – growth, and that low interest rates worldwide are likely to be the new normal.
Poloz, who is stepping down as governor upon the conclusion of his seven-year term in June 2020, said that Canada should buttress itself against the impact of low global interest rates, especially the possibly unmanageable increases in household and government debt.
“Experience shows that high debt levels can amplify the impact of a shock on the economy,” Poloz said in a speech to the Empire Club in Toronto late last week, as quoted by CBC News.
Another major factor is slower population growth in the most advanced economies, which doesn’t bode well for future workforce productivity and economic output.
Moreover, ongoing economic tensions – especially the cross-Pacific trade war – might prove to be significant speed bumps in the long term.
“Tariffs on imports are forcing companies to dismantle supply chains and create new ones that are likely to be less efficient,” Poloz added.
“At the same time, uncertainty about the future of trade policies and critical institutions like the World Trade Organization (WTO) is having a more insidious effect — companies have cut their investment plans, which means less potential economic growth in the future.”
Wilkins emphasized that while Canada has sufficient buffer against the worst effects of these global dangers, internal pressures such as high household debt levels are still hazardous by themselves.
“We also see that mortgage credit growth and home housing prices have started to pick up again,” Wilkins told The Canadian Press. “The market has been boosted by a drop in mortgage rates. And the share of new mortgages going to highly indebted borrowers has started to creep up.”
“With storm clouds gathering, we can't let our guard down,” she added. “This is even more important given that high global leverage would amplify any global downturn, especially if it became a recession.”
