The governor of the Bank of Canada is rejecting the notion that the country is excessively dependent on its natural resources sector, arguing that the economy remains highly diversified.
Stephen Poloz made the remarks Monday during a question-and-answer period that followed his speech in Calgary — in a province where the energy sector has been hit hard by the plunge in oil prices.
“You gotta believe it’s better to have some of this stuff than not to have that stuff,” Poloz said of commodities in response to a question from the audience at the event hosted by Calgary Economic Development, a non-profit group that promotes growth in the city.
Poloz described natural resources as Canada’s “backbone” because they represent about 20 per cent of the economy, adding that other sectors remain, in some ways, dependent on it to perform well.
Meanwhile, Poloz said he doesn’t “fret about it.”
“We’re a highly diversified economy and we should be thankful that we’ve got resources as part of our diversification, whereas lots of other countries don’t have that,” he added.
Poloz’s speech came amid a difficult period for the Canadian economy, which contracted over the first two quarters of 2015 and pushed the country into a technical recession.
The steep fall in the price of crude oil, which closed just below US$47 a barrel Monday after falling from a high of US$107 last year, has been slapped with much of the blame for the shrinking economy. The economy has also been hindered by slower than predicted rebounds in other sectors.
As a result, experts, including the Bank of Canada, have downgraded growth projections for the country. Forecasters, however, have predicted the economy will improve in the last half of the year.
The gloomier economic conditions to kick off 2015 quickly became a focal point for much political debate in the current federal election campaign.
Both NDP Leader Tom Mulcair and Liberal Leader Justin Trudeau have accused Conservative Leader Stephen Harper of putting all his eggs in one basket when it came to the oil sector.
Poloz said when the commodity cycle dips, a resource-dependent economy such as Canada’s should be prepared to make adjustments.
In his speech, he said the resource sector should remain undeterred from making long-term investments despite recent price drops.
Poloz reminded his audience how the economy benefited significantly in recent years from rising commodity prices. As an example, he highlighted how the price of copper had tripled while oil and nickel more than doubled between 2008 and 2010.
“We shouldn’t ignore the resources that we have been blessed with,” Poloz said.
“Without those investments (years ago), we would never have been able to capitalize on the higher prices, which boosted Canada’s aggregate income.”
Business leaders in the oil industry told the central bank earlier this year they would be cutting investments by about 40 per cent because of the steep price drop, which has not recovered as quickly as anticipated, Poloz said.
He added that in recent weeks these companies were still revising their longer-term forecasts for the price of oil.
The resource sector, he said, is still adjusting to the tougher conditions — a process he believes will take “considerable time.”
None of the volatility, however, should deter Canadians from continuing to seek benefits from the country’s resources, Poloz said.
“It’s true that an abundance of raw materials may complicate the management of companies and complicate the conduct of economic policy,” Poloz said in the speech delivered in a province where, he noted, resources make up more than a quarter of economy.
“(But) even when prices are falling, as they have been recently, our endowment represents a store of value and a source of future riches.”
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