OTTAWA — The Canadian economy remains resilient despite the global uncertainty caused by the trade war between the United States and China, a senior Bank of Canada official said Thursday.
In a speech to the Ottawa Board of Trade, deputy governor Timothy Lane said inflation in Canada remains on target and a strong job market points to sources of growth.
“It is because of this strength amid the turmoil that we say Canada is resilient, although not immune,” Lane said, according to a prepared text of his speech.
Lane made the comments a day after the Bank of Canada announced it would keep its key interest rate target on hold at 1.75 per cent, where it has been set since October last year.
The Bank of Canada has stood out from many of its international peers who have moved to cut rates and loosen monetary policy in response to weakness in the global economy. The U.S. Federal Reserve has cut its rate three times this year.
However, Lane said there is no reason for the Bank of Canada to move in step with the U.S. Federal Reserve.
“On the contrary, the experience of the past decade shows that Canada and the United States have followed different roads, reflecting differences in our economic conditions,” he said.
Lane said the resilience in the economy here at home has allowed the central bank to chart its own course.
In making its rate decision in October, the Bank of Canada said it considered the possibility of cutting its key interest rate target as insurance against an economic slowdown, but decided it wasn’t worth the cost.
Lane said Thursday that the bank did not reopen that discussion when making its most recent decision.
“This time we’d already had that conversation so it was more a question of has anything material changed and our assessment was that the outlook still remained on track, so we didn’t really reopen that question,” he told reporters in a news conference.
TD Bank senior economist Brian DePratto said the Bank of Canada sounds like it does not want to cut rates unless absolutely needed.
“It is hard to imagine more clear a way to communicate this than a speech focused in large part on how Canada has diverged from its international peers in the past,” he wrote in a report.
“The bank remains clear in the barometers it will be watching to assess the resilience of the Canadian economy: consumer spending and housing activity remain front and centre.”
The Bank of Canada said Wednesday that concerns about a potential global recession are waning, but ongoing trade conflicts and related uncertainty still weigh on the global economy and remain the biggest source of risk to its outlook.
Meanwhile, economic growth in Canada slowed in the third quarter to an annual pace of 1.3 per cent, matching the forecast by the Bank of Canada in its monetary policy report in October, while inflation has remained close to the central bank’s target of two per cent.
“Overall, the tone of developments in recent weeks gives us more confidence in the outlook for growth and inflation that we set out back in October,” Lane said.
The central bank noted business investment spending in Canada, which rose 2.6 per cent in the third quarter, was stronger than expected.
“We were expecting investment to decline in the second half of this year, but instead we have seen solid growth. Moreover, data have been revised upward, revealing that investment earlier this year was higher than previously reported,” Lane said.
This report by The Canadian Press was first published Dec. 5, 2019.
Craig Wong, The Canadian Press