Bank of Canada Governor Tiff Macklem takes part in a photo opportunity at the Bank of Canada amid the COVID-19 pandemic in Ottawa on Monday, June 22, 2020. Macklem will deliver a speech and take part in a press conference at the Bank of Canada later today. THE CANADIAN PRESS/Sean Kilpatrick

COVID-19 to leave some lasting economic damage, Bank of Canada chief says

Canadians shouldn’t expect the short and sharp economic bounce-back expected over the coming months to last

The COVID-19 pandemic will leave some long-term economic damage that will only become clearer as the country moves further along a “prolonged and bumpy” course to recovery, Canada’s top central banker says.

In his first speech as governor, Tiff Macklem said the central bank expects to see growth in the third quarter of this year as people are called back to work and households resume some of their normal activities as restrictions ease.

But he quickly warned Canadians not to expect the short and sharp economic bounce-back expected over the coming months to last.

The combination of uneven reopenings across provinces and industries, the unknown course of consumer confidence, and unemployment rates will “likely inflict some lasting damage to demand and supply,” Macklem said in a speech Monday.

The exact extent of the damage in terms of the number of lost jobs and business closings won’t become clear until the country is further along the reopening phase.

And even when things start looking up, he said there is the potential for setbacks from new outbreaks.

“As we get through that reopening phase, though, we do think that the pace of the recovery will slow and that will reflect the reality that not everybody’s job is coming back,” Macklem said at a midday press conference.

“Some companies aren’t going to make it to the other side of this. New companies will form, existing companies will seize new opportunities, but that takes some time and that’s going to be a slower, bumpier process that is going to require ongoing support.”

ALSO READ: Travel will have to wait, despite calls from Canada’s business leaders, Trudeau says

The central bank’s support against the economic shock caused by the pandemic has been a drop to its policy interest rate to 0.25 per cent, which Macklem says is as low as it will go.

The Bank of Canada has also launched a purchasing program of bonds and government debt to help markets function and make borrowing cheaper for households and businesses. Such purchases, known as quantitative easing, also send a signal that the bank’s key rate “is likely to remain low for a long period,” he said in his speech.

The bank has a number of other tools it can use to deliver some monetary stimulus beyond the interest rate, Macklem said, including scaling its purchasing programs or providing more direct forward guidance on activities as other central banks have done.

“Going forward, the types of measures we take will depend on the circumstances. Different measures have different effectiveness in different circumstances. And they will be guided by the achievement of our inflation target,” he told reporters.

“We’ll be flexible, we’ll be resolute, we’re going to be innovative and we’re going to be determined.”

For the Bank of Canada, the impact of structurally low interest rates and the scale of the shock are having what Macklem said is “a profound impact” on the inflation-rate target.

The central bank targets an annual inflation rate of two per cent as measured by Statistics Canada’s consumer price index.

The basket of goods used to form the index has been shaken by a shift in consumer spending habits during the pandemic. People are spending less on gasoline, which usually receives a heavier weight in calculating inflation, as its price has plunged and the frequency of car travel has dropped. Spending is also down on travel, while grocery spending is up.

Last week, Statistics Canada reported the annual pace of inflation was -0.4 per cent in May, marking the second consecutive month for negative annual inflation after a reading of -0.2 per cent in April.

In his speech, Macklem said the bank expects supply to be restored faster than demand, which could put downward pressure on inflation. BMO’s Benjamin Reitzes wrote in a note that Macklem’s message suggests bank policy remaining easy for some time.

Next month, the Bank of Canada will provide “a central planning scenario” for the economy and inflation to help guide bank policy, as well as related risks — such as local, but not national, lockdowns.

“The central scenario would embody the reality that there probably will be some more local flair-ups,” Macklem said.

“Hopefully, with each flair-up we get better at targeting it, isolating it, and closing it down faster than the one before.”

READ MORE: Forecast says Canada’s economy will grow in 2021 if there isn’t another national shutdown

Jordan Press, The Canadian Press


Like us on Facebook and follow us on Twitter.

Want to support local journalism during the pandemic? Make a donation here.

CanadaCoronaviruseconomy

Just Posted

Baby raccoon rescued from 10-foot deep Saanich drainage pipe

‘Its cries were loud, pitiful and heartbreaking,’ Saanich animal control officer says

Search for missing hiker resumes, then suspended again

Search for Laurence Philippsen near Gold river revived after new information received

Unemployment surpasses historic high in Greater Victoria, tourism hit hard

Hospitality and tourism sectors hurting as pandemic continues

Rare comet dazzles night sky over Saanich Peninsula

Comet NEOWISE is passing Earth for the first time in 7,000 years

COLUMN: For Generation X, COVID-19 isolation just something to grin and bear

Segment of society has been training for this our whole lives

Sources say Canada, U.S. likely to extend mutual travel ban into late August

Prime Minister Justin Trudeau hinted at the possibility after a phone call with U.S. President

Spill response vessel arrives in Port Alberni

Base isn’t finished, but team is ready for emergencies

West Shore RCMP responds after reports of man masturbating on bus

52-year-old man charged with committing an indecent act in a public place

Canadians torn on scaling back COVID-19 benefits to save money: poll

Of those surveyed, 78 per cent said they were worried about the size of the deficit

Mayor not in favour of low barrier housing at Oak Bay Lodge

Process is already in place to determine future of Oak Bay Lodge

More than 100 apartments for seniors approved in Nanaimo’s hospital area

Development permit issued for 1125 Seafield Cres.

Vancouver Island volunteer wins BC Hockey award

Alberni Valley’s Kellie Steel named one of nine unsung heroes through COVID-19

Sidney’s Mary Winspear Centre to host a trio of acts

Aaron Pritchett, Alex Cuba and Valdy will each play four shows

Hotel rooms for B.C. homeless too hasty, NDP government told

Businesses forced out, but crime goes down, minister says

Most Read