Economy Will Need a Year and a Half to Recover

By Andrew Rickard | May 21 2015 01:05PM

The Bank of Canada believes that, barring further difficulties, the economy should be running at full capacity by the end of 2016.

poloz_stephenIn a speech to the Greater Charlottetown Area Chamber of Commerce on May 19, Bank of Canada Governor Stephen Poloz reviewed the current economic situation. He noted that the plunge in oil prices late last year year threw the budding economic recovery off course, and warned that the headwinds of the global financial crisis are still blowing. However, he suggested that the Bank's decision to keep interest rates at 0.75% has made things easier for individuals and companies alike.

"Bank staff estimate that a household that has renewed a $100,000 mortgage would save about $250 in interest payments this year. That’s on top of the roughly $500 that the average household will save in gasoline costs," he said. "But the really big impact is for companies with existing export contracts in U.S. dollars, which would see a bump in cash of roughly $15 billion to $20 billion over the course of the year from a three-cent drop in the Canadian dollar. They will also be in a stronger position to compete for new export contracts in the future."

Poloz emphasized, however, that the outlook remains uncertain. He pointed out that both oil prices and the Canadian dollar have moved higher in recent weeks, and that inflation remains below the target mark of 2%. "We’re still a ways from home; we project it will take 18 months or so to get there," he concluded. "That’s if growth turns out as we expect and we aren’t hit by other storms or cross-currents on the way, whether headwinds or tailwinds. But our best judgment is that we should get home — at full capacity and with inflation sustainably at 2% — around the end of 2016."