Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 1 - Evidence - November 20, 2013
OTTAWA, Wednesday, November 20, 2013
The Standing Senate Committee on Banking, Trade and Commerce met this day at
4:15 p.m. to examine the present state of the domestic and international
Senator Irving Gerstein (Chair) in the chair.
The Chair: It is a pleasure to start today by welcoming three new
members of our committee: Senator Campbell, Senator Ngo and Senator Rivard. We
are delighted to have you join us.
This is the committee's first meeting of the Second Session of the
Forty-first Parliament. Colleagues, we are pleased to welcome Mr. Stephen Poloz,
Governor of the Bank of Canada, as our first witness in this new parliamentary
session. Governor Poloz was appointed the ninth governor of Canada's central
bank effective June 3 of this year, after more than 30 years in both private and
public sectors. Immediately prior to becoming governor, he was President and
Chief Executive Officer of Export Development Canada.
An alumnus of both Queen's University and the University of Western Ontario,
Dr. Poloz has given back to the academic community by teaching economics at both
his alma maters as well as at Concordia University in Montreal. Governor Poloz
was also a visiting scholar at the International Monetary Fund in Washington and
the Economic Planning Agency in Tokyo.
While Governor Poloz may be a fresh face to members of the committee, joining
him today is a decidedly more familiar face, Mr. Tiff Macklem, Senior Deputy
Governor of the Bank of Canada, whom we warmly welcome as well.
To give the committee an update on the bank's monetary policy as well as
projections for the Canadian economy, I now turn the floor over to Governor
Governor, the floor is yours.
Stephen S. Poloz, Governor, Bank of Canada: Thank you very much. Good
afternoon, everybody. I want to thank you very much for the opportunity for Mr.
Macklem and me to be with you here today to discuss the October
Monetary Policy Report, which we published almost four weeks ago now.
The bank aims to communicate our objectives openly and effectively and to
stand accountable for our actions before Canadians. One of the best ways to do
this is through appearances such as this one.
Allow me to spend a few minutes on the highlights of the report. I would like
to flag some important changes that were introduced with this issue.
We have modified the report to explicitly capture the uncertainty that is
inherent in our outlook. The goal is to present to Canadians a reflection of the
evolution of the risks to our inflation outlook that are embedded in our policy,
rather than simply comparing a snapshot of the current forecast with that of our
The picture is not always perfectly clear, and so we added new measures of
ex ante or before-the-fact uncertainty to our five most critical projection
We added rule-of-thumb ranges around the base case projection for the growth
in Canadian and U.S. GDP, around Canadian total CPI inflation for the current
level of the output gap, and for the growth rate of potential output in Canada.
With this, we are reminding ourselves — and, of course, those who watch us —
that economic projections are subject to considerable uncertainty and are
revised over time as new economic data become available. In effect, monetary
policy formulation is more of a process of risk management than one of
In our policy deliberations, we must evaluate and assess all of these risks,
whether they're positive or negative, and then use judgment to determine a
balance among them.
As is customary in the October report, we reviewed the forecast for potential
output. Due to lower-than-expected labour productivity growth in the past year,
as well as the delay in the expected pickup in demand for exports and
investment, the forecast for potential output growth was revised down slightly.
Since the report was published four weeks ago, the outlook for the global and
Canadian economies has not changed substantially.
Let me remind you what we reported:
We expect the global economy to expand modestly in 2013. However, its
near-term dynamic has changed, and the composition of growth is now slightly
less favorable for Canada.
Uncertain global and domestic economic conditions are delaying the pickup in
exports and business investment in Canada. This leaves the level of economic
activity lower than the bank had been expecting.
While household spending remains solid and some indicators in the housing
sector continue to rise, we still expect a gradual unwinding of household
imbalances. The bank expects that a better balance between domestic and foreign
demand will be achieved over time and that growth will become more
self-sustaining, but this process will take longer than previously projected.
We are expecting investment growth to contribute to a rebound in the rate of
labour productivity growth over the next couple of years. However, demographic
factors, primarily the aging population, are expected to put a drag on the
growth rate of trend labour input. This drag will largely offset the effects of
rising investment. This is why we expect that the growth rate of potential
output will remain fairly stable, at around 2 per cent over the next three
Real GDP growth is projected to increase from 1.6 per cent this year to 2.3
per cent next year and 2.6 per cent in 2015. The bank expects that the economy
will return gradually to full production capacity, around the end of 2015.
Inflation in Canada has remained low in recent months. This reflects the
significant slack in the economy, heightened competition in the retail sector,
and some other sector-specific factors.
With larger and more persistent excess supply in the economy, both total CPI
and core inflation are expected to return more gradually to 2 per cent, around
the end of 2015.
Although the bank considers the risks around its projected inflation path to
be balanced, the fact that inflation has been persistently below target means
that the downside risks to inflation assume increasing importance. However, the
bank must also take into consideration the risk of exacerbating already elevated
Weighing these factors, the bank judged, on October 23, that the substantial
monetary policy stimulus in place remained appropriate and decided to maintain
the target for the overnight rate at 1 per cent.
Since then, while some new data points have been released, our outlook
remains roughly the same, as I mentioned.
If you have any questions about the recent data, Mr. Macklem and I would be
pleased to address them, as well as all the other queries you may have.
The Chair: Thank you, governor. Your opening comments reflect
interesting data content and policy. I must say, my question is on neither.
I would like to refer back, if I may, to an article in which you are quoted
in the Report on Business, which attracted my attention and in which you
said, ``My style is not to lead with what I think, but to sit back and let 'er
Perhaps you could enlighten our committee a little on your style, and then I
will leave the intricate questions to the members of the committee to pursue
Mr. Poloz: Well, thank you for the question. I guess historically what
I have established for myself is rather a style of leading from behind, which I
think fits well with the kind of team atmosphere that we have at the bank.
The process of policy formulation involves a lot of experts in very
specialized areas. In particular, at our executive table, the six of us, the
governing council, represent a very diverse set of long experience, both in
policy-making and outside.
And so I think the best way for me to capitalize on that expertise is, as you
say and as the quote said, ``to sit back and let 'er go.'' Almost daily, we
debate what the news means, what it means for us and so on, and then use that
time to provide an opportunity for consensus amongst the group. That's working
If Mr. Macklem wants to comment further on how that is working out, I would
Tiff Macklem, Senior Deputy Governor, Bank of Canada: It is working
The Chair: With that comment, we will start with Senator Black.
Senator Black: Thank you very much. Governor, welcome. It is great to
see you. Of course, Mr. Macklem, it's always good to have you here as well.
My question relates to the advice that was tendered to Canada this week by
the OECD, wherein there was a suggestion that perhaps between now and 2015 we
need to be moving our interest rates up perhaps a little more aggressively than
your comments would suggest. Are you able to comment on that?
Mr. Poloz: Well, certainly. The OECD isn't the only entity who will
offer us advice, which is, of course, quite valuable. It is not just advice, but
underneath it is a lot of rigorous analysis, which may have different strengths
compared to our own. It is valid to hear that.
I guess it's important for us to remind ourselves that monetary policy, by
its very nature, must be forward-looking because, of course, it takes time for
its effects to be realized. Logically, that means that you don't rely on the
latest information nearly as much as on a forecast of what you think will be
true over the next six to eight quarters, which is kind of the frame within
which we make those decisions, a bit like a hockey player must pass in front of
the play in order for the other player to be there.
Forecasts, of course, can differ a lot from entity to entity or organization
to organization because you use different models. It can also differ from person
to person who is interpreting the models and who is interpreting the latest
data. In other words, models and judgments differ.
We admit and have been very clear, as I said in my opening remarks, that our
forecasts are not pinpoint numbers — decimal points don't have much meaning in
this kind of context — but rather represent ranges of likely outcomes. We have
to make sure that that uncertainty is not just acknowledged but is actually
embedded in the decisions that we make, so we have to take explicit account of
that uncertainty and make sure that we're comfortable with the policy that we
set out, regardless of how things turn out within that zone, so it doesn't rely
on a knife-edge outcome. Those differences can show up in the way that this has.
The most important uncertainty, as I have highlighted here, is how much of an
output gap, how much capacity there is in the economy. We measure that in a
variety of ways. The obvious ways are from the product markets and also from the
labour market. Those two things give you two different impressions. We capture
that uncertainty in our forecast. Also, the fact that inflation is not just
where it is, it is below where we would like it to be. We start the question at
a place that we consider to be behind the game, and we would like inflation to
be higher to be in our 2 per cent target zone.
Those things together give us the judgments that we reached, as I have
summarized for you. Obviously, they differ in a material way, according to those
point estimates, from what the OECD is saying. That could be because their model
is different; their estimates of the output gap can differ according to the
model — and, of course, their judgments. I respect those. However, they're
different from ours, and it is our job to reach that final conclusion.
Senator Ringuette: I guess I have two comments. One is my concern
about the level of household debt and how all that relates to the continuous
trade deficit that we have. Is it because the Canadian dollar is overvalued on
the global market? That puts our export potential at too high a value to be
interesting to markets out there. At the end of the day, the less we manage to
export in the balance of things, the less money we have in our economy, and then
you see the household debt being higher than it should be.
These are all the intricacies, but I understand your focus is on inflation
and so forth. However, I'm really concerned about our continuous trade deficit
and household debt that has gone down a little bit but it is not where it should
be. Is it all based on the Canadian dollar being too high on the global market?
Mr. Poloz: Well, as I am sure you know, that's a very complicated
question. If we retell the story of the last five years, we can always put the
pieces together, and we will see if that gets you closer to where you would like
The world went through this cycle — it is not even over yet — as a result of
the bursting of the financial bubble that was mainly in the United States but
went global. That caused a global recession that was highly synchronized, and
global trade collapsed during that. As a trade-dependent country, Canada bore
more of that fluctuation than other countries that are less dependent on trade,
and that is particularly the case since the United States was at the centre of
that. In that sense, some weakness in our external balance was inevitable in
that cycle. It is proving to be a very long cycle — about a five-year cycle so
On the other side of this, in response to that weakness, countries used
policies. In Canada, the folks that kept us out of a major recession were the
households that responded and bought more cars and houses and borrowed in order
to do these things. It was that cushion developed in that way that gave us a
smoother cycle than in many other countries. As a result of this major global
shock, we have these two things that happened at the same time: a deficit in our
trade balance, which is a fairly recent phenomenon as it is only about four or
five years; and the off-set, if you like, for our GDP was extra spending,
advancing purchases of homes and so on and taking on a debt in order to finance
That explains the data as we see them. I think the next question is what
happens next. One of the things that happened along the way was the Canadian
dollar did go up through that period because growth stayed strong in
commodity-intensive parts of the world and kept the price of oil and other
commodities stronger than normally the case would be in a global down cycle.
That combination gave us these outcomes, but that doesn't mean that this caused
this, caused this, caused this. They're all symptoms of one bigger thing.
Where we go now, we expect to see the world continue to heal. Trade globally
will pick up, in particular our trade with the United States, which is so
important to us. Exports will become a bigger share of our growth here.
Meanwhile, households, having done all the heavy lifting during the last four
years, are ready for a break and will gradually pay down some of that
indebtedness, especially as new jobs create new incomes.
We believe that all those things are on the verge of a healing process. It
may take a couple of years to do, but our forecast is that all those things that
you are concerned about are in the process of improving.
Senator Ringuette: How can you explain — and you just mentioned it —
the financial crisis that started in the U.S. and spread around the world? At
that time and since, our Canadian banks were and have been making record profits
while households have record debts. I find that to be a major imbalance. I don't
know if it's because we should have more financial institutions to provide more
competition in the system so that certain abuses of practice that I see would be
levelled out for Canadian households and the small and medium-sized businesses
too that are bearing the crunch. As you said, they have picked up and maintained
a certain level of growth in our economy while the financial sector, including
during the last quarter, has made record profits. It is unbelievable.
Can you explain that phenomenon?
The Chair: We are running out of time. The governor won't have enough
time to respond to you. I'm going to turn the question over to him.
Senator Ringuette: Maybe he would like it that way.
Mr. Poloz: I'm happy to answer the question. One of the reasons we
have had a better experience than many other countries through this piece has
been a strong and conservatively managed banking sector.
The fact that the economy has maintained momentum, but in a different way
than before, has been profitable to the banks, even though debt service for
ourselves or for companies is the lowest it has been in our lifetimes. That
combination just happens also to be profitable for banks; and I don't see it as
some sort of distortion or issue.
Are there areas in the economy where financing is less easy to come by, such
as in a small business or medium-sized businesses? That has always been true. It
is not truer today because of this cycle than it was before it. We have a sector
that still has some soft spots in it for certain sectors. That is why we have
Crown corporations such as the BDC, FCC and EDC, to help fill those gaps.
That doesn't change the fact that we have benefited from a very strong
banking system through this period. We didn't have to do any sort of bailing out
while other countries had to do a lot of that.
Senator Ringuette: We seem to have some Canadian banks that have
benefited from capital input, from Canada or in different ways in Canada and in
other ways from the U.S. Federal Reserve.
Mr. Poloz: There were a couple of occasions there where liquidity was
being provided everywhere in order to sustain or make the system feel secure,
but it was not a necessary piece of work here in Canada.
Senator Nancy Ruth: Governor, welcome. I'm an advocate for making sure
that women and those who are under- represented in Canadian society get their
fair shake, so this is the non-risk question.
Anyhow, that's one of the reasons I support restoring our national anthem to
gender-inclusive words, and now there is the issue of the bank notes. I know
about Mark Carney's comments in August last year. I have read your reply to
Merna Forster and so on. I am interested in your review of the bank note design
in 2014, and I note that you are open to suggestions from all Canadians. I note,
too, that you don't want individuals; you want collective action.
I'm going to give you a few so you've got them in your mind. One would be
suffrage. Another would be the initiation of the baby bonus. Another would be
the efforts of the home front of women during the First and Second World Wars,
but the First World War for sure where the war could not have continued unless
women had done more labour. Another would be the 1980s efforts around the
Charter of Rights and Freedoms, especially in the equality section. Those are a
few collective actions and there are lots more, from farm women, fish women,
right across the board. There are lots of images to stick on your notes.
Mr. Chair, and governor, I would like to have the governor back before the
committee in early 2014 for a meeting dedicated to the bank notes. I'd like to
have you back when the report is done but before it's implemented so that we can
have some input into it.
I would like you now to share the details of how the review is being
Mr. Poloz: Okay. I think the important piece of background is that it
is not a quick or simple task to redesign a bank note. That's a process. The
ones we have just finished rolling out took eight years for us to design and
then build out of new material, new security features, et cetera.
The actual images that are on them were decided after several hundred
meetings across Canada where we sought a lot of input. We felt we were building
a consensus around those things. Then we submitted our design ideas to the
Minister of Finance, who approved them. Then we produced them, and now it's
taken that much time to get them on the street.
We never stop, because counterfeiters never stop, so we continue to do our
research on what the next generation of notes is likely to look like. There will
again be a process of getting people's input on what images people might be
proud to have in their wallets.
As I have said to Ms. Forster, I am delighted to have that input. I'm wide
open to the idea of our finding images that mark some of these accomplishments,
and some of them would have to do with women and their success and things they
have contributed — absolutely open to this.
The process that you're referring to is a paper about the process, as opposed
to the process itself, reviewing whether there are other things we should be
doing to make sure that this next cycle we are better at it and that we've taken
all the lessons learned from the past ones.
I'm happy to come back and talk about that at any time and very happy to have
the input from all Canadians, including of course the 25,000 or so who have
signed Ms. Forster's petition, which I have seen in my hands and reviewed, and
I've reviewed the books she send me, which are entitled 100 Canadian Heroines
and 100 More Canadian Heroines. So there are 200 case studies right
there. I appreciate all this, but I hope people understand that we can't go out
this afternoon and say, ``Let's have a new bank note.'' That takes a great deal
of time for us to do, and it would be a consultation with all Canadians, as it
was last time.
Senator Nancy Ruth: It wasn't last time, that's part of the problem.
The Famous Five Foundation, which worked so hard to get Thérèse Casgrain and the
Famous Five on the $50 bill, was not consulted at all. It came as a huge shock
to them. That's why I'm raising this whole issue of consultation.
Mr. Poloz: It came as a shock that they were on the bill or not on the
Senator Nancy Ruth: No, that they were removed.
Mr. Poloz: It's not removing someone from a bill.
Senator Nancy Ruth: I understand that, but that was one group that had
a specific interest who had lobbied to get that image on to the bill, and they
were never consulted when it was being removed. My issue is, in part, whom do
you want to contact? Governor, I'll tell you, I would be very happy to help you.
Can I ask a question about the aging population then?
In your speech today, and also on page 19 of your report, you observe that
Canada's aging population is creating a slowdown in the growth rate of trend
labour input, which would largely offset increase in labour productivity. Can
you elaborate on the effects that Canada's aging population is going to have on
our economy in the shorter term and in the longer term then?
Mr. Poloz: Yes, I certainly can. We all know about the baby boom
generation and what age they are. I happen to be one of them. As that bulge in
our population works its way through, what we get is a tendency for labour force
participation overall to decline. The peak in labour force participation so
happens to have been about five years ago. It happens to be just about before
the crisis hit, but that is steadily declining, and it leads to a little
confusion for some people because they would believe perhaps that one of the
things that will happen as we get back to normal, post crisis, is that we will
go back to that peak, and we will not. If we did, we would get a much bigger
kick in the productivity, the output that was potential for the economy.
What we foresee is that companies are about to engage in a stronger
investment path and that this will add to productivity significantly, but that
add will be just enough more or less to offset the gradual decline in labour
force participation that we are referring to.
These constitute let's say headwinds. They're gentle headwinds for the
economy. We are talking about 2 per cent instead of 2.4 per cent or something
like this. Nevertheless, it's something that economists take very seriously
because 0.4 for a long time will add up to a lot.
That aging thing is something we have to take into account when calculating
how much extra capacity there is for us to expand the economy, because that
capacity is the thing which, once it gets close to zero, helps to develop
Senator Nancy Ruth: I come from the inner city of Toronto, so I'm
aware of seniors doing their bit at McDonald's or wherever they are to earn
either under or over the $3,000 tax threshold and so on. I listen to
grandchildren of friends of mine who are in part-time jobs with no benefits or
almost no benefits. With all these things decreasing, it seems to me that
although the government has done a fair bit to move poverty to a lesser degree,
we are encouraging by some of our actions, certainly with elderly women and
youth, huge poverty, huge inability to access the entrepreneurial market to get
on. I hope they don't have credit cards — that's what I hope — because I don't
want to look at their debt ratio. It may be more than 165 per cent. I don't know
whether it is or isn't.
It scares me to watch corporations outsource. It scares me to watch
corporations hire contractual labour only. I question whether we're not in the
long run doing a disservice to the country. I don't know whether you have any
Mr. Poloz: I, too, know people who have decided to stay in the
workforce longer than they originally planned. We know, for instance, there are
more self-employed people, for example, in the consultant business post
retirement. The reason is that their retirement fund is not as much as they'd
hoped it would be or they may not have one, as you mentioned. I understand this.
While we all know examples of people like that, the big statistics don't lie:
As predicted, the aging of the population is reducing. The supply of labour at
the margin is not a major headwind but is something we need to take into
account. I don't have a quick answer for you about those fundamental issues
except to say that given what we've been through, we can actually count
ourselves quite lucky.
I think it's because we had a very prompt and coordinated policy response at
the G20 level, which all countries went through. I get letters from folks asking
me why I keep interest rates so low — it's hurting their retirement if they
don't have enough interest income. I ask them to think about what their
retirement might have looked like if we hadn't had this policy response and how
deep the hole might have been then. It is important to keep that in mind. I
realize it is a counterfactual and it's hard to believe it could have been as
bad as all that, but it easily could have been as bad as all that, such as a
1930s type of outcome. We had all the ingredients, but policy this time around
was much stronger, better and more coordinated than it was in the 1930s.
We have to bear in mind that potential downside and say, well, thank you for
doing a pretty good job; but it's not perfect.
Senator Hervieux-Payette: Mr. Poloz, welcome, and especially,
congratulations on your new position. We are counting on you to steer the ship
safely, at least during your mandate.
In your scenarios for the next two years — for the second one particularly —
when you said that the GDP will increase by 2.6 per cent, did you take the free
trade agreement with the European Union into account? Even if its implementation
may take some time, will it have an impact on the Canadian economy? Will the
fact that Canada has ratified that agreement with Europe mean that there will be
value added to the national revenue?
Mr. Poloz: You are asking whether the projected growth of 2.6 per cent
will create demand on the labour market. I am certain that this will increase
demand for labour significantly.
What we do not yet know is the impact on the unemployment rate because of
other trends, and as I mentioned, the labour force participation trend. That is
why unemployment is not an ideal indicator to assess the success or lack of
success of that policy. But we see a process which will bring about a very
gradual and positive increase in the number of jobs.
Last year, we saw that salaries for these new jobs were higher than average.
That indicates that the jobs that are created are better jobs. This brings
income into the economy and changes the dynamics of the debt, by the same token.
Senator Hervieux-Payette: Do you think that the value of the euro as
compared to that of the Canadian dollar benefits Canada's exports?
Mr. Poloz: That is not really an important factor for our businesses
here. Most of the businesses I am talking about consider this factor to be a
temporary one. They tend to take more time to decide whether they need to keep a
client, to treat him normally and absorb the rate of exchange fluctuations in
their profit margin, for instance.
It is not really clear that this lowers exports, but it can influence the
bottom line for businesses. It all depends on the situation.
Senator Hervieux-Payette: I was not talking about imports, but about
exports. Currently the euro is very expensive. I bought some recently and they
cost more than $1.40. So I think that for a Canadian product versus a similar
European product, unless there is a change in the value of the euro, this should
benefit Canada, which is supposed to have better access to the European market.
Would you say that is the case?
Mr. Poloz: First there is access to markets with CIDA, for example.
That is a basic tool for businesses. But at the same time, there is the issue of
finding clients, and when you have a contract with one, the business has to know
what it is going to do to react to exchange rate fluctuations.
This may translate into a price increase which may reduce the chances of
success, but the business must absorb the fluctuation into a lesser profit
margin, if it thinks that this is a temporary situation. The approach changes
from one business to another. You cannot generalize.
Senator Hervieux-Payette: My last question is about indebtedness,
which is a matter of concern to us all. When students go to university, they are
offered credit cards even if they do not have jobs. I am also thinking of
welfare recipients, who also have access to credit cards. These people do not
pay down the principal of the debt, they only pay the interest. They are
probably the best clients for our banks.
Then there are personal loans to purchase a house. You have to be able to
make the basic downpayment, and then afterwards qualify to have access to a loan
from the Canada Mortgage and Housing Corporation. Are you discussing ways of
stopping the exploitation of low-income people with the Minister of Finance?
Rich people do not use this type of thing. The people who do are low-income
people who do not have much money. But when the Bank of Canada increases
interest rates, these people are going to have some serious problems with their
personal loan which is generally spread over five years, aside from their
mortgage loan with a 25-year amortization.
Are you considering any other measures aside from your interest rate? Since
we are not headed toward a 10 per cent rate tomorrow morning, are there other
suggestions being made to the Minister of Finance, so that we can stop this
hemorrhage and provide these people with some security for at least the next
Mr. Poloz: I will start to answer your question and perhaps Mr.
Macklem will have something to add. It is true that the cost of servicing debt
right now is minimal. But there is always the risk that these people will have
too much debt, and will not be able to deal with this increase in interest
rates, which seems inevitable.
Banks and other lenders are planning to examine young people's incomes to see
whether they would still qualify if there is an increase of two or three points
in interest rates.
Generally we find that people are very conscious of these things at this time
and credit scores are higher than before the crisis.
M. Macklem: I would like to add something. Clearly there are a lot of
players and they have responsibilities. The responsibility begins with
individuals who must be aware of what they are doing. Banks have the
responsibility to make sure that if they lend money, people are able to
reimburse the loan, and not only at today's very low interest rates, but in the
future, when they may be higher.
It is the responsibility of The Office of the Superintendent of Financial
Institutions of Canada to supervise banks, and it has introduced new guidelines
for banks to ensure that they are more rigorous in assessing that capacity to
repay. This is in place now.
The other important aspect, and this is not one of our responsibilities in
the context of monetary policy, but it is important for the system, is financial
education. I know that the minister has created a group to examine that. It is a
good idea that young people — everyone, in fact, not just young people — have a
good understanding of financial decisions.
Senator Tkachuk: Welcome, governor. Congratulations. Good to see you
again, Mr. Macklem.
I have two questions. One is on the interest rate. There have been a number
of questions around the table about interest rates, credit cards and all the
rest of it. Japan had a low-interest policy, and I think that the banks in the
U.S. and obviously here think that a low-interest policy will stimulate the
economy. In Japan, they have had this policy for 15 or 20 years now, and it
hasn't done them a lot of good.
We have been continuing this policy in concurrence with the United States,
and the United States has given no indication — although they talk about it —
that what they call monetary easing, which is printing money, is going to end.
We have been doing this now for five years. How long can we continue this?
Japan is an example where it doesn't work. What examples do we have in the world
where it does work?
Mr. Poloz: Well, fortunately, we haven't had to do this before, and
that's because we never had a shock as big as the one that we had in 2008.
If we do go back and take a look at history, back in 1989-90, Japan had
something pretty similar. There was a financial bubble involving the stock
market and real estate — the banks were heavily implicated — and when that
bubble burst, there was, in effect, a lot of bankruptcy, which was not cured. It
was kind of left there to try and work off as opposed to just wipe out.
It is not since the last eight or nine months that we have actually seen
Japan move to the sort of policies that the textbook says you should move to in
a situation like that. They have been very cautious. They had a low-interest
rate policy, and it kind of stabilized the economy, but it didn't really
generate growth. It did stabilize, however.
I spent time in Japan during that period, and it is an economy that did not
flourish but managed, and that's important because it could have been much
Similarly, the situation we have here — in fact, the entire world was drawn
into this bubble — the way I characterize it, the bubble breaks. Underneath the
bubble there's a crater, and that crater is the same size as the bubble. It is
big. It took seven years to build that bubble. The imbalances that lay behind
that bubble are big and will take a long time to repair — roughly speaking,
about as long as it took to build them.
So something like that suggests we have more time to go. It is not really an
accident that we talk about a couple of years from now we think we're getting
closer to home because that will be seven years since this all began.
To finish the metaphor, it would be that central banks used these special
arrangements. They were written into our textbooks back in the 1930s and we
thought, ``Well, we will never have to do that because we're smarter than
that.'' And it just turns out that on average, for all that time, central banks
and fiscal authorities have been smarter than that; they have managed economies
better than back then, but this shock was simply too big.
Once you get interest rates down as low as they can go, which is what
happened in the United States and Japan, that's when you pull out these other
techniques, which you refer to as printing money, but they are extraordinary
liquidity provisions, bond-buying programs, forward guidance, those types of
things. Until this came along, these were theoretical things, and now we see
them in action and we have had enough time to analyze them, and we can see that
they have had a meaningful effect in the U.S. economy. I have every reason to
think they will have a meaningful effect in Japan. Fortunately, we have not had
to resort to that here. We have had a cushion throughout, and part of it is the
story I told before.
So the answer to your question of how long can we do this goes back to how
big is the crater. If you think of that crater as truly a crater, it is as if we
have filled it up with liquidity so you can row your boat across it. When we get
across, then we can get out of the boat and go back to normal, but until then,
we have to keep the crater full of liquidity. Otherwise, the counterfactual
becomes a risk for us again.
That counterfactual would include a stagnant economy, possibly for a long
time — I'm talking globally now, not necessarily ourselves — one in which there
would be substantial risk, not just that inflation would go lower but that it
could become deflation. When you have deflation — we all have some form of debt,
and while your wages are falling along with prices, the value of that debt is
going up relative to the work that you do every day, and that's where Japan
So with the monitoring authorities around the world — we talk about this a
lot in our meetings in Basel — we feel we did a pretty good job. We avoided
that, and we are on track to a healed global economy. I hope that gives you more
background. I could talk about this all day, but I shouldn't.
Senator Tkachuk: Well, I can't.
Mr. Poloz: I understand.
Senator Tkachuk: Not being an economist, it is a little difficult.
Thank you for that.
I have another question. Mr. Corcoran wrote an article in the National
Post. He was talking about Mr. Greenspan's latest book — and he quotes from
it — about the economic models in place in 2008, and he said they failed
miserably. Mr. Greenspan wrote:
It all fell apart, in the sense that not a single major forecaster of note
or institution caught it. The Federal Reserve has got the most elaborate
econometric model, which incorporates all the newfangled models of how the
world works — and it missed it completely.
I'm not necessarily a believer that we could ever predict the beauty of the
free enterprise system; when people screw around with it, it all falls apart,
and it sends a signal saying ``don't do that.'' But at the same time, could you
comment on what Mr. Greenspan wrote? Can you tell us what the bank can do —
besides watching it — to give people signals that we're heading into a position
that may cause us a problem?
Mr. Poloz: Alright. I'm very sensitive to that issue. I was fortunate
to have dinner with Mr. Greenspan not too long ago and to talk about that very
interesting shift in his thinking through time.
The fact about models is that they are abstractions and they're meant to
capture average behaviour for us and to give us a certain amount of
predictability. But we have to treat them with the respect they deserve, which
is that they will never tell us exactly what is going to happen. It goes back to
my first question today, which was around what the OECD had to say. You
shouldn't be so precise about these things.
The models tell us one thing. By the time we got to around 2006-07, most
people agreed there was something wrong and we didn't really know what the
fallout might be; but we agreed that we couldn't explain what was going on. That
tells you, first of all, that there's a bubble because none of your models can
explain a bubble. That's what a bubble is. Then you say, well, that's got to go
away. Well, how do you let the air gradually out of a bubble? You cannot, and
when it explodes, it can leave the crater behind, as we have discussed.
The models that we typically use are not very good for explaining bubbles.
That's the definition of one, and they're certainly not very good afterwards
because that gives rise to process of adjustment that is not captured in average
I have talked a lot to our people about that. We can't live without models —
that's how we organize our data and our discussions. I encourage people to think
of models as a source of questions as opposed to answers. How we deal with that
is we continue to invest in our understanding around those edges so that we have
alternative models or models that explain residual behaviour.
If you use a model that says it should be this and you know it won't be that
because the world has changed in this way and this way and this way, it gives
you some leads on how to modify your judgment. Monetary policy is not a
scientific thing based on a model. We use all different kinds of models and
insights, and we try to form an average kind of judgment. We hope thereby to
manage those risks in a way that gets us home.
Senator Massicotte: Welcome, Governor and Mr. Macklem.
Congratulations, Mr. Poloz, on your appointment. You have a very important
responsibility, and we wish you well.
I am going to continue in the same vein. Two or three months ago — as a
follow-up to your statement — you made some comments that were relatively
optimistic concerning the Canadian economy, stating that there was a lot of
investment potential in the private sector. The newspapers even reacted with a
great deal of interest concerning the fact that you were that optimistic, and I
am sure that a lot of Canadians and consumers reacted by making some large
However, six weeks later, your optimism had vanished. And now, as you say in
your report, your position is to maintain an incentive and support the Canadian
economy, but in a much less optimistic way than two months ago. That is why now,
in your report, you are trying to include risk in your projections.
We read the statements made by the Governor of the Bank of Canada very
attentively, as a matter of course. The Bank of Canada has a very good
reputation, and is known as one of the better research bodies in the entire
world, after the FED and the Bank of England. But I am beginning to wonder — and
I think I am not alone — about your projections, which have not come to pass on
a regular basis over the past few years — and this is true also for all of the
indicators in the world — and the fact that there are constant updates in your
forecasts; I am beginning to wonder if it is even worth reading the projections.
Perhaps we should simply say that no one knows, and not grant as much
importance to your statements. It is like hockey analysts; after the fact,
everyone knows the perfect solution, but those who can predict the results of
the hockey game accurately are rare. Is that your case? They are interesting,
like a good novel, but are your projections really scientific and credible?
Mr. Poloz: Thank you, that is an excellent question. You are talking
about my speech in Vancouver, where I talked about long-term forecasts. In June,
we talked about the current situation and what the long-term destination for our
economy would be. We talked about the process of increasing interest rates,
which would be gradual and further down the line. In fact, it was in our press
release at the time; we mentioned that we would eventually see an increase in
interest rates, a normalization of those rates.
The purpose of our speech in Vancouver was to describe in greater detail the
components of that normalization and the speed at which it would take place. It
was an analysis with a much longer horizon than usual.
At the same time we obtained frankly disappointing data regarding exports,
data that showed a lower growth than anticipated. Given that it was necessary
than to say that we understood our destination, but that it was obvious that
even if we could see the components that were present, they were not
sufficiently offset by other factors, given the lack of exports particularly,
and the investment that entails.
The story is exactly the same, to us, in both cases; in one case, the
destination was the focus, but our analysis now is that we may reach that
destination a year later than originally expected.
Senator Massicotte: In summary, journalists are to blame for having
misinterpreted your comments.
Mr. Poloz: One or two perhaps, but it was not generalized.
Senator Massicotte: You said afterwards that we will eventually see
growth and an increase in interest rates. That is certain; just as we are
certain that one day we will all pass away.
What does a 2.3per cent or 2.8 per cent increase in the growth rate mean?
Should we now think that it will lie rather between 1 per cent and 2 per cent?
Because if one looks at the number of corrections the Bank of Canada made over
the past five years — there were continual corrections. Perhaps you should
simply say that no one knows.
Mr. Poloz: You are right. We were disappointed repeatedly during the
process, and that has been going on for about three years. Today, I would say
that we do not really understand why. What we see is that there is a constant
decline in our export sales to the United States. The level of demand from the
U.S. is such that we have fewer exports than forecast in our models, and that is
true of every quarter. We are looking at a $30 billion gap now, which has
What our forecasts show is that eventually the growth in our exports will
almost equal the growth in the American economy, but this gap will remain and
will be permanent. We do not really know why; there are various possible
explanations. For instance, we lost businesses during the recession; around
9,000 exporting businesses during that period. That represents 20 per cent of
the total number of exporting businesses. That could be one reason. A second
reason is competition, since the value of the Canadian dollar has increased;
that too has contributed to the situation and is in our mandate.
What I am talking about is the part that we cannot explain. We are conducting
research on that currently. There is another, more conservative hypothesis, and
that is that this may be a permanent effect. Perhaps there will eventually be
good news and we may regain those clients; it may be a matter of the
distribution of growth in the United States. Up till now it has been somewhat
concentrated and not present in all sectors. For those reasons, I have to admit
that we do not really know. Mr. Macklem is an expert, and he has something to
Mr. Macklem: I am going to give you a somewhat more general
perspective. We agree entirely that there is a lot of uncertainty. We do not
know the future, and that is something that must be taken into account when
decisions are made on monetary policy.
As the Governor has just pointed out in his opening remarks, in this report,
we try to cover that aspect better. We introduced a target range in our
projections to indicate that they are not perfectly accurate. There will always
be new information, there will always be revisions to our projections. So in
order to provide a target range, we try to provide a normal benchmark for those
Moreover, at the end of the report, we refer in detail to the main risks
involved in making our projections. In making our decisions, we try to balance
the risks. The decisions are not entirely based on a forecast. There is a basic
forecast, and there are risks involved, and we try to establish a balance. We
take all of that into account when we make our decisions.
Senator Maltais: Governor, welcome and congratulations on your
appointment, and welcome, Mr. Macklem. The former governor came to see us quite
often, and that is an excellent habit.
My colleagues put questions to you about Canada's monetary policy. You know,
out of the 35 million Canadians there are now, there are certainly 30 million
who understood nothing of what you said, which is normal. However, to those
people, you are the key man in Canada. You set the monetary policy and you set
the interest rate. To these people, you are far more important than you know.
However, there has to be an opportunity to speak to them. Today, this hearing
is televised, and so we are giving you the opportunity to speak to Canadians.
This morning, we heard about the fact that property in Canada is overvalued,
by 27 per cent in Quebec and even a bit more than that. You know that in
property assessment, the pension funds of middle-class people who earn between
$40,000 and $65,000 a year are often included. What they can accumulate
throughout their life is their pension fund.
This morning, this was bad news for those people; their pension fund just got
devalued by 27 per cent. Aside from the Great Depression of 1929, not much has
happened that was more unpleasant than this morning's news for all of the
Canadians who have a mortgage, and who just learned that their house, instead of
being worth $300,000, is now only worth $225,000.
What would you have to say to those people today?
Mr. Poloz: I would like to reassure them. I would say that the
situation is improving and that our economic future depends mainly on conditions
in the United States. This never changes. The American economy is beginning to
grow at a more rapid rate. Indeed, growth is higher than it seems, because
fiscal effects are currently reducing the GNP statistics. The private sector is
in a good place; it has made several adjustments. And so, I am confident that
growth in Canada will take place, thanks to this development in the United
States. This will balance our economy and make it more renewable.
Property assessment is a more personal matter. Obviously the purchase of
property has given our economy some momentum. It was very important to have a
cushion in this situation. But at the same time, we recognize that this is not a
situation that can be sustained, and the adjustment will take place gradually.
At this time, we expect a soft landing. Given that situation, it is as though
all of the analyses were on board a ship. It leans this way and that, and there
are waves that make it heave and pitch; however we are heading for the harbour,
and that is exactly what we mean by a soft landing.
Certain indicators are stronger than forecast, and others are less so. I must
admit that I am not entirely sure, but we feel that the situation has just about
settled. We predict that things will improve without a major price correction.
That remains a risk for the economy, a vulnerability we acknowledge, but we
think that for that to happen, there would have to be some kind of external
shock. We are not in a bubble, in the sense that it will correct itself. But if
there is some kind of turbulence from the outside, another analysis will
Senator Maltais: This is Wednesday, November 20, and it is 5:25 p.m.;
you are speaking to about 15 young couples between 25 and 35 years old, with an
income of $65,000. They ask you: ``Governor, will 2014 be a good year to buy a
home? We have a little money.''
What do you answer them? They do not believe the bankers, but they believe
Mr. Poloz: It is not my role to give specific advice like that, but I
would say that the macroeconomic situation is stable enough and that it will
improve even more in the next 12 months. However, you are not asking the
question as an investor. I am not going to make any predictions without knowing
the value of the property in 12 months. That is a very personal and complex
question. It depends on the market.
If they want to become homeowners, I would tell them that the cost of
mortgages is ideal, and that the economy is going to improve during that period.
That is our projection.
Senator Maltais: Have the declining mortgage rates which we have seen
for some years not contributed to an explosion in the cost of homes? Many people
bought properties they could not afford, for $300,000, $325,000 or $400,000,
depending on where they were in the country. As soon as the interest rates
increase, these people will not be able to carry that burden.
If the economy slows down, would the lower interest rates not be a liability?
Mr. Poloz: You have identified a risk for the economy. As I mentioned
before, lenders have been circumspect during that period. The Bank of Canada has
issued warnings, for close to three years, that people have to prepare for
interest rate hikes. That fact is inevitable, even if we do not know exactly
when it will happen. It is true that last year, it was postponed.
At the same time, in my conversations with the banks' representatives, I was
told that when they issue a mortgage, they look at qualifications. Today, credit
ratings are much higher than five years ago. So buyers are not only qualified,
but well qualified. Secondly, they redo the calculation with an interest rate
that is three points higher, and determine whether buyers still qualify.
Thirdly, people choose less expensive homes, with smaller mortgages.
Consequently, I think that the risk is well known. Does this mean there is a
risk of zero? Certainly not.
When we see interest rates rising, it is in the context of a stronger
economy, and for other reasons which may be linked to the United States, to
exports, to more stable, less precarious jobs, et cetera. It is in the context
of a stronger economy that we will see interest rates rise.
On the macroeconomic level, certain individuals will fall into the trap,
without a doubt. However, that is not a major risk factor for the economy.
Senator Maltais: The governor will have given all the young couples in
Canada the best advice they could have received, and it was free.
Senator Rivard: Governor, welcome and congratulations on your term. I
congratulate both of you also for your knowledge of the French language.
Mr. Poloz: Thank you.
Senator Rivard: I would like to know whether it is true that the
robustness of the Alberta oil industry puts such upward pressure on the value of
the Canadian dollar that this has a very adverse effect on exporters, on
manufacturers and all those who produce metals, such as steel mills. This is
sometimes referred to as the Dutch disease. Do you share this opinion that many
people hold? Is it a myth or a reality?
Mr. Poloz: As with all myths, there is a grain of truth there. Let me
summarize: it is true that during this period, we have seen a worldwide increase
in the cost of oil. It was a type of blessing for Canada, given that we are net
sellers and not buyers of that product. It was like a gift. Everyone wants to
pay more for a product that we sell.
One of the consequences, not only in our models — this is the usual case — is
that since Canada is an oil producer, the exchange rate is sensitive to that
fact. And the exchange rate increases for that reason alone. That is why during
this global recession, we saw an uncommon situation. Normally, we see the
exchange rate go down; it is like a type of cushion. However, this time that was
not the case, because the big oil producers stayed very solid. Consequently,
economists agree to say that this is the exchange shock or terms of trade. The
value of our exports is higher than before.
This phenomenon did not only occur in Alberta, but also in Newfoundland and
the east, and in Saskatchewan and British Columbia. Several provinces produce
oil. This injection of income has positive effects throughout the economy, and
that is important. Engineers, for instance, come from everywhere. They work on
these projects. Other materials come from everywhere in the economy. So the
effect of this influx of income is very generalized.
That is why we do not really use that term ``Dutch disease,'' because that
analysis goes back about 40 years. The situation was different then.
Nevertheless, it is true that that combination is an added stress on
manufacturing enterprises. That is certainly the case. We were in a major
recession and we saw a real drop in international trade. It is difficult to
separate out all of the effects, but all of the factors seem to have contributed
to that. Today we can see that the net result of that is that given all these
factors and the high price of oil, this is a gift to the entire country.
Senator Rivard: It is not a myth; there are advantages to having a
strong oil industry. Everyone benefits, I share your opinion, and I am happy to
In one of your presentations, you referred to Mr. Greenspan, your American
counterpart. Do people at your level, governors of the central banks, hold
meetings like those of the heads of state, comparable to the G7 and the G20? We
know that at the end of January every year, several heads of state meet in Davos
to talk about the economy. Are there formal or informal meetings like those in
M. Poloz: Yes, that does exist, formally. Six times a year, the
governors of the central banks meet in Basel, at the Bank for International
Settlements. We have several meetings in that context, both large and small.
Canada is a member of the smallest group. It used to be the G10, but it is
bigger now. I have conversations with my colleagues on a regular basis. I do not
hesitate to contact them if I have a question or something to share.
We also attend G7 meetings where the ministers of finance are present. The
G20 is a larger group, naturally. It is a meeting of the governors and finance
ministers of 20 countries.
We see more emphasis on developing countries. There are several opportunities
to talk about that. When I went to Washington, I shared an informal meal with
Mr. Greenspan, and it was a privilege.
Mr. Macklem: The governors are not the only ones who meet. There are
also meetings at other levels in the institutions. The forecasters also have
meetings at the G7 and G20s. As well, people with other types of
responsibilities have meetings. The governors are important, but this is team
Senator Rivard: With your permission, I would like to make a comment.
Our colleague Senator Ringuette often talks about the excessive profits of the
banks. I am also thinking that there are a lot of pension funds and that if
there were more investment by the banks in our public pension funds, the
actuarial deficit would be much lower than it is presently. That is my opinion,
and I wonder if you share it.
Mr. Poloz: Technically speaking, that is true. The performance of that
sector has been excellent. Yes, that is true.
Senator Massicotte: Will it continue?
Mr. Poloz: I do not know.
The Chair: Colleagues, that completes our questions in round 1. I have
two senators with questions in round 2.
Senator Black: Thank you, Mr. Chair. My question has been answered.
Senator Massicotte: Recently, yesterday, there was a report by Fitch,
and last week by some expert in England, saying that the average value of our
houses in Canada is overvalued by as much as 25 per cent to 35 per cent. This
leads to the question. They say there will be adjustment. I guess there will be
in time. How quick is the adjustment? Could there be, and what is the risk of
it, a significant decrease in housing values, which obviously would materially
affect the consumer's ability to spend and would materially affect our economy?
How high is that risk? Do you agree with that assessment by Fitch and so on?
Mr. Poloz: Well, in the sense of identifying it as a risk, we do the
same in both our Monetary Policy Report and our
Financial System Review. We identify the imbalances in the household
sector as having built up during this cycle. That's one of the elements of it,
that part of it has come through extra indebtedness for households; another part
has been that it has pumped up prices, kept them solid, while in other markets,
for example, the United States, prices went down a great deal during the same
period of time.
In the sense that it is identified as a risk, I have no quarrel with that.
That is true. Looking underneath, as I was saying before, the question would be
this: What might actually cause that risk to be realized? You think about things
such as maybe another global shock like the one we had in 2008, where
unemployment in Canada rose again. That would be the sort of thing that might
cause people to stop buying houses and prices to correct downwards. That's a
possibility, but, as I said, that's not our forecast. Our forecast is a very
conservative one, and we think the situation will continue to improve.
That's what a soft landing looks like. It worries you the whole way,
actually. I think we have to get used to that feeling that until, say, two years
from now, when things have come more into a balanced place, we're always going
to be worried that something like that could still happen.
How big a fallout would it be? It depends a great deal on where it is, if
it's concentrated, if it's generalized or not. People do these calculations and
say the housing sector is overvalued by this much or that much. We can tell by
certain metrics it looks expensive, but if we look underneath it, which markets
are expensive, many of the ones that you mentioned are the ones that have been
expensive my whole life. You wonder how much is it because there's extra
immigration coming into Toronto. You've got kind of a quasi-cash market in
Vancouver. It's always been expensive there. So how much of that is a general
macro issue versus a more localized phenomenon is hard for us to put our finger
on, but we agree it's a risk and it would slow the economy down if it were
realized. We will be doing our utmost to keep the conditions in a positive way
so the soft landing remains possible.
Senator Massicotte: Your projections basically say it may result in
overvaluation, but you're saying stagnation of prices without any shocks.
Mr. Poloz: Yes.
Senator Massicotte: What's the probability of that being accurate?
Mr. Poloz: Of it being adequate?
Senator Massicotte: Accurate. Are you 85 per cent sure of your opinion
or are you only 5 per cent sure?
Mr. Poloz: To be honest, as a forecaster, it would be highly unusual
to be as much as 85 per cent certain.
Senator Massicotte: So 75?
Mr. Poloz: Something in the sort of 60 per cent to 80 per cent range
is your kind of rule of thumb. If you get below that, then you shouldn't really
be making a forecast. But I think, to be honest, the zone of ignorance around
these things is pretty big. Because we've gone far away from the normal
determinants, so it's not like we can use our model and say, ``Well, it's really
close; it's only this much of a potential error.'' We see building to be pretty
lined up with demographic demand, so that's one thing. We haven't had
significant overbuilding. A couple of markets maybe a little bit more than you'd
expect, but it's because it comes in lumps and it takes time to finish.
It's not just using our models. We talk to lots of people. I spend a lot of
my time just out talking to people, and people in that business will tell you,
``Well, demographic demand must be high, because I've got people lining up to
buy these things and I can only build this many. I could build more, actually,
because there's more demand than that.''
The underwriting, as I said before, has been extremely strong. So that gives
us assurances, on the one side, to counteract that as a risk rather than it
being a generalized issue for Canada. It doesn't mean it's zero as a risk. I
can't say that.
Senator Hervieux-Payette: Maybe I should go back to when you were
talking about productivity and investment in companies in new technology,
meaning less manpower. I guess we've been saying that in this committee for
years, that there are companies who are slow to invest in new tech. New techs,
most of the time, say you start with 50 people before and 10 people after. So
when we talk about aging, if you put these things together, the lack of
manpower, there might not be a lack of manpower if we are modernizing our
I would like to add, for your comments, the immigration. We can have a very
high-qualified immigration coming from Europe and we can have, I would say, very
low-tech immigration just to work on construction sites and things like that,
but with not necessarily the high skill.
I'm wondering: We hear that the government, on the one hand, is going to
reduce the quota of immigrants. We hear, on the other hand, that there is a
shortage of skilled manpower; and, on the other hand, that the aging population
will, of course, not stimulate as much the economy. How do we reconcile those —
the aging, the immigration, the new technology — to have a picture of where
we're going? Sorry for the last question.
Mr. Poloz: Yes, I certainly am very tempted to hand that over to my
colleague, Mr. Macklem, because it's a very complicated question. Hang on now.
I'll just give it a little shot.
I think what we have to maybe get a little bit more of a sense of is where
most new jobs come from in a growing economy. The answer is not from existing
companies but from new companies. What we've been living through is about five
years now where, on a net basis, there has not been the growth in new companies
that we normally expect to see. We have no problem understanding why that would
be. It's been a very challenging environment. But in an economy like ours that
usually is growing 2 to 3 per cent on a trend, you can count the number of
companies every year and you'll find, sure enough, there's more than 2 per cent
higher population of companies every year. That's true for the U.S. and for the
U.K. also. That process stopped in 2007.
It looks to us, although the data are shaky, that it has just recommenced,
which is a really good sign that the actual kind of self-sustaining, natural
growth process may be starting up again. That needs to be fuelled not just with
high- tech jobs. It's also ordinary jobs. It's all kinds of jobs. And since
they're brand new companies, most of the training happens on the job. So you
need basic skill sets, of course.
Can I make sense of all of those things? Probably not, okay? It's a fact that
companies will tell you, ``I can't find this,'' so there's a skill shortage.
Other companies say, ``I can't find enough of these,'' and it's not necessarily
a skill. Yet we have unemployment rates in certain regions.
I know Mr. Macklem has given a speech recently on this, about how our actual
process of adjustment in Canada has improved over the years, so we are being
more flexible as a labour market.
All those things make us encouraged. We just have to remember what we've been
through and not expect too much at this moment in time.
Mr. Macklem: I want to come back to the issue of immigration and
labour force. It actually links back to Senator Nancy Ruth's question earlier
Going back to that earlier question, as the governor indicated, labour-force
growth peaked around five years ago. It was running around 1 percentage point.
So even with no productivity growth, just by people entering the labour force we
were getting 1 percentage point of growth. It's now about 0.8, and over the next
few years it's going down to about half a percentage point.
Demographics are one of the few things that are highly predictable. We all
know we will be a year older next year.
Senator Hervieux-Payette: Most of the time, but not always.
Mr. Macklem: It's worth emphasizing that while we know we're all going
to be a year older next year — the demographics are predictable — there are
things we can do, there are things that companies can do, to draw new workers
into the labour force.
One source of new workers is immigration, and this country is built on
immigrants, and it's an important source of labour for the country.
Getting back to Senator Nancy Ruth's question, there are other pockets of the
labour force where we could probably raise participation rates. So you take
older workers. Firms can put in place more flexible work arrangements that suit
older workers better. The Aboriginal population is one of the most rapidly
growing populations in this country. There are good moral reasons to encourage
them into the labour force, but there's also, increasingly, going to be economic
Again, firms need to think about human resource policies and, more broadly,
governments. Those are things well beyond monetary policy. So the more of that
that goes on, those can offset to some degree, not entirely, the fact that we're
all going to get a year older and aging is going to go on, and that will
increase the potential growth of the Canadian economy. This economy can grow
faster without inflation.
The Chair: Governor, senior deputy, this has been a most informative,
stimulating presentation and discussion. On behalf of all of the members of the
committee, I would like to express our great appreciation for your appearance
today, and I can assure you we look forward to your next appearance before us.
Thank you again.