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

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

Do Your Part Recycling Co is celebrating 15 years of its operation in Terrace this May. (Binny Paul/Terrace Standard)
How a homegrown Terrace business became a vital cog in the regional recycling initiative

Do Your Part Recycling owner Kasey Lewis on how they started 15 years ago

Construction continues on Coast Mountain College’s student residence on May 12, 2021. (Ben Bogstie/Terrace Standard)
VIDEO: Work continues on major projects at Coast Mountain College

Price tag of $35 million set for housing, substantial renovations

Terrace city council gave first and second reading to zoning amendment bylaws for the proposed transload facility located next to Keith Ave. (Image courtesy Hatha Callis, Progressive Ventures Group)
Next inland port public hearings set for June

Terrace council gave first and second reading to establish new zone, rezoning application

Skeena Valley Farmers Market will host Northern Health’s COVID-19 vaccination booth on May 15. ( Skeena Valley Farmers Market/Facebook)
Northern Health to set up COVID-19 vaccine booth at Skeena Valley Farmers Market

The booth will be set up on the south side of the market towards Park Ave. on May 15

Both Lanfear Hill, pictured here, and Kalum (Skeenaview) will be closed at different times this evening going into Friday morning. (File photo)
Two hills to be temporarily closed tonight

Pipe inspections first on Lanfear and then on Kalum

Prince Rupert was one of the first B.C. communities targeted for mass vaccination after a steep rise in infections. Grey area marks community-wide vaccine distribution. (B.C. Centre for Disease Control)
B.C. tracks big drop in COVID-19 infections after vaccination

Prince Rupert, Indigenous communities show improvement

A COVID-19 patient receives oxygen outside a hospital in Jammu, India, Wednesday, May 12, 2021. (AP/Channi Anand)
B.C. donates $500K to Red Cross COVID-19 relief efforts in India

The money will provide oxygen cylinders and ambulances for patients in communities grappling with the virus

Superintendent Aaron Paradis, community services officer with the Surrey RCMP, during a media availability about a recent drug bust in Port Coquitlam. (Photo: Lauren Collins)
Police seize 13 million ‘potentially fatal doses’ of pure fentanyl at B.C. drug lab

The evidence was seized at large, illicit drug manufacturing site in Port Coquitlam

B.C. Public Safety Minister Mike Farnworth debates the province’s latest measure to control crime, March 10, 2021. The legislation allows police to impound vehicles used to transport weapons and further restricts sale of vehicle and body armour. (B.C. legislature video)
B.C. seeking ways to ‘name and shame’ gangsters, minister says

Mike Farnworth appeals to family members to talk to police

Jonathan Prest had to climb way up to the top of a dead red cedar tree to rescue a terrified cat, but he made it up and down successfully. (Facebook photos)
Tree cutter rescues cat stuck 100 feet up a dead and dried-out cedar

Jonathan Prest put himself in extreme peril to get a terrified cat out of a dangerous situation

The Greater Victoria School District continues to face backlash over its wording and approach to Indigenous learners in its 2021-2022 budget talks. (Black Press Media file photo)
School district’s approach to Indigenous learners leaves Victoria teachers ‘disgusted’

Backlash grows over ‘pattern of colonial thinking permeating the leadership’

Italian-Canadian prisoners at the Kananaskis prisoner of war camp in Alberta. (University of Calgary/Contributed)
Italian moved to Okanagan with hope; he ended up being sent to a WWII internment camp

Raymond Lenzi shares his grandfather’s story ahead of Canada’s planned formal apology to Italian-Canadians

Then-minister Rich Coleman, escorted by Victoria Police, makes his way to the east wing amid a protest blocking the legislature entrances before the throne speech in Victoria, B.C., Tuesday, Feb. 11, 2020. THE CANADIAN PRESS/Chad Hipolito
B.C. money laundering inquiry testimony ends today with reappearance of Rich Coleman

Responsible for the gaming file off and on from 2001 to 2013, Coleman been recalled after his initial testimony to the Cullen Commission last month

Colin Dowler rests in hospital recuperating from wounds suffered from a grizzly bear attack north of Campbell River. He was able to end the struggle by stabbing the bear in the neck with a knife like the one he is holding. Photo submitted
‘Bad-ass dude that took on a grizzly bear’ doesn’t let 2019 B.C. attack bring him down

Campbell River’s Colin Dowler gets on with his life as his rehabilitation continues

Most Read