Former Bank of Canada Governor Stephen Poloz says “everything is going as it should” for Canada to get inflation under control.
“We have a lot of downward pressure built up in the system now, inflation down to 2.5 per cent, so I think the risks actually are accumulating on the downside now,” Poloz, the former head of Canada’s central bank and current special advisor at Osler, said in an interview with BNN Bloomberg on Thursday.
Inflation in this country hit 2.5 per cent in July, its lowest level since March 2021, according to Statistics Canada.
The former governor says current Bank of Canada Governor Tiff Macklem is right to keep an eye on downside risks to the economy.
“With the [inflation] target in sight and more excess supply in the economy, the downside risks are taking on increased weight in our monetary policy deliberations. We need growth to pick up so inflation does not fall too much, even as we work to get inflation down to the two per cent target,” Macklem said at a press conference in July.
Poloz agrees, saying “It’s always this risk. You’re always watching the target but your target is the last thing to move and so it’s that notion about turning the ship in time to avoid going too far.”
The progress made on inflation on both sides of the North American border is giving Poloz optimism, but he believes in looking at all of the cards on the table, saying soft landing odds “shouldn’t be taken for granted” on either side of the border. For a Canadian recession, Poloz says, “I wouldn’t call one, but we should be prepared for one and not pretend it can’t happen.”
Productivity challenges persist
One area of Canada’s economy that is highly scrutinized is the significant gap in productivity in the country when compared to global peers. The Bank of Canada recently noted that Canada has seen no productivity growth in recent years and over the past four decades has slipped significantly compared to some global peers. Poloz says a big reason for Canada’s productivity problem is that “we do not present a favourable environment for investment.”
Immigration a factor
One key way to grow productivity is to get more people into the workforce. Poloz thinks immigration will be integral to Canada’s future economy and critical to growth.
“The demographics [in Canada] are such that we’re not growing our workforce at all. Which means, any growth in our workforce for the foreseeable future will be through immigration,” says Poloz. He believes challenges posed by rapid immigration, such as housing issues, are just “bumps along the way” which are necessary for the growth of Canada’s economy.
“We need to be able to live through those kinds of things because the fundamental is we really will rely more and more on immigration just to grow our economy and sustain that future for our kids and grandchildren. We need to accept some of those bumps along the road,” says Poloz.
On pension plan debate
Poloz is leading a group for the federal government tasked with encouraging more pension fund investment in Canadian businesses. His focus is on identifying key barriers to pension investment and attempting to remove them.
“From the beginning, we’ve said this is not about finding a way to force something to happen. It’s about looking for impediments or obstacles that [pensions] come up against that may prevent them from having as good as a playing field here as is offered to them in other economies where they seem to invest more,” said Poloz.
The task force is dialled in on making more opportunities for pensions in Canada and making it easier for them to choose home-grown investments, he says, “that’s an ongoing conversation.”