Bank of Canada: degree of untapped potential remains in economy

Cornelia Mascio
Marzo 13, 2018

"This is important, for it means that Canada may be able to have more economic growth, a larger economy, and therefore more income per person, without generating higher inflation". "We'll retain our call for only one more quarter point hike this year".

The Canadian dollar fell on Mr. Poloz's remarks, losing almost half a cent by late morning to trade at 77.43 United States cents. The Bank of Canada's primary objective is to target inflation, and Poloz's strategy is based on the premise that the erosion of productive capacity in recent years can be in part repaired, which would help keep prices in check.

"We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur".

In a lecture at Queen's University, Governor Poloz said that the Canadian economy is now in the phase of the economic cycle where companies need to expand capacity to meet rising demand.

"This is a phase worth nurturing", he said.

"If the economy builds more supply than usual, that will put downside risk on inflation", he said. "If less, that will create upside risk to inflation, and it is our job to balance those risks".

Canada's untapped potential extends to the future of work, the Governor explained.

The biggest gain would come by raising the participation rate of prime-age women (those 25 to 54 years old) - now at 83 per cent versus the 91 per cent for men.

The head of the Bank of Canada is pointing to Quebec's subsidized child-care program as a possible tool to boost the economy because it could significantly increase female workforce participation across the country.

"If we could simply bring the participation rate of prime-age women in the rest of Canada up to the level in Quebec, we could add nearly 300,000 people to our country's workforce", said Poloz, who noted the central bank has no role in implementing specific policies created to break down labour-force barriers.

The federal government took a step in that direction in last month's budget by announcing extended parental leave benefits through Employment Insurance to encourage dual-parent families to share child care duties.

Youth represent another source of untapped potential.

Poloz said that expanding Canada's labor force could increase the country's potential output by as much as 1.5 percent. Getting back to that threshold would add another 100,000 people to the labour force, he said.

It's more complicated than just making more workers available.

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