Gov. Poloz braves the chill

Bank of Canada Governor Stephen Poloz made the long flight north to Iqaluit, Nunavut on April Fools Day to talk about trade and the economy.  The weather was a relatively balmy -10 degrees celsius -- normal is about -15 at this time of the year -- and Poloz's message was similarly moderate.

Poloz explicitly blamed the slowdown in global trade and investment in the second half of 2018 on "the US-led trade war".  This was a key factor in the slowing growth experienced by Canada in the final quarter of the year.  However, Poloz noted that there were still signs of forward momentum in the domestic economy, most notably in service industries and in the jobs market.

While hoping for an easing in current trade tensions,  Poloz noted that there are things Canada can do by itself to keep the economy moving ahead.  He drew attention to the persistence of inter-provincial trade barriers, and suggested that lowering these could add $4.5 billion to GDP, and opportunity "too good to pass up" -- though one, given the current level of rancour between the various regions and levels of government, highly unlikely to come to pass any time soon.

Poloz mentioned some of the other headwinds facing the economy: lower oil prices and the problems getting crude to market, the overvaluation of the housing sector and the accompanying sky-high household debt.  However, he reiterated the Bank's belief that its current policy settings will help to keep the economy on track.  He expressed confidence that the slow growth phase will be temporary, a view bolstered not only by the January and February employment data, but also by the surprising rebound in GDP growth seen in January. 

In all, there was nothing in this speech to change the consensus assumption that the Bank will not be looking to hike rates any further for the balance of this year.  Equally, there was nothing to support the minority view that the Bank's next rate move may turn out to be a cut.  As always, the Bank's stance is data-dependent, and the next key data release is the March employment report, due this Friday (5th).