Speaking a day after we decided to hold interest rates steady, Senior Deputy Governor Carolyn A. Wilkins discussed the key points Governing Council considered in their decision. Focusing on the outlook for business investment, she explained that the Bank expects companies to gradually expand their spending but said trade disputes have undermined business confidence.
Policy rate unchanged
We decided to hold the policy rate steady at 1.75 percent.
Economy evolving in line with our outlook
- Economic data reinforce our view that the slowdown in late 2018 and early 2019 was temporary
- Risks related to global trade have increased
- The oil and gas sector is beginning to recover, but transportation constraints continue to weigh
- Strong growth in income is supporting consumption
Investment improves living standards
Business investment is a key component of Canada’s economic growth.
When companies invest in technology or training, workers can accomplish more with better tools. This higher productivity means stronger growth in wages and higher living standards, without inflation.
Numbers help illustrate this point. Steps by firms to increase their productivity through investment have added about $177 billion to economic growth in 2018 alone. That’s almost $5,000 per Canadian.
Investment makes workers more productive by increasing the capital that they have to work with. You can clear your driveway faster with a snowblower than with a shovel.”Carolyn A. Wilkins, Senior Deputy Governor
Investment in digital economy, services to lead the way
In recent years, companies have not been spending as much as we had expected, in part because they are worried that global trade conflict could disrupt their business.
Our aging population and competitiveness issues are also holding back decisions to upgrade or expand capacity in Canada.
Still, we expect business investment to expand gradually this year, led by firms outside the oil and gas sector. Where will investment come from?
- Services industries, such as information technology, where demand is solid
- Digital economic activities, such as automation, artificial intelligence and machine learning
Future policy decisions are data dependent
In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate. In taking future policy decisions, Governing Council will remain data dependent and especially attentive to developments in household spending, oil markets and the global trade environment.”Carolyn A. Wilkins, Senior Deputy Governor