In his traditional year-end speech, Governor Stephen S. Poloz described some of the long-term forces affecting the global and Canadian economies that will shape the Bank’s work in 2020.
Watch Governor Poloz speak to the Empire Club of Canada in Toronto. Read the full speech.
Big forces in the global economy
As a trading nation, Canada will need to grapple with major long-term forces that are affecting the global economy:
- Population growth is slowing in many economies, and this is holding back global output.
- Firms and workers can improve Canada’s prospects by becoming more efficient and productive. But this isn’t happening fast enough to offset the effects of slower population growth.
- New technologies will help make economies more productive over time. But trade wars could stall the globalization that has helped firms and workers become more efficient in the past.
- Because slow growth is likely to persist, interest rates will stay lower than usual.
- When interest rates are low, households, firms and governments tend to borrow more. That supports the economy; but high debt means more vulnerability if something bad happens.
We’re reviewing our policy framework and tools
The Bank’s monetary policy framework is scheduled for renewal in 2021. Our agreement with the federal government on the goals of monetary policy is reviewed every five years.
In 2020, we’ll finish the work we’ve been doing since the last renewal in 2016. We have been thinking about whether we need to change either our policy goals or how we achieve them.
As part of this process, we’ll hold a number of round tables with stakeholders and conduct an online public consultation so anyone in Canada can share their views. We’ll summarize what we hear and post it, along with much of our research on the subject, on our website.
Then, in 2021, we’ll work with the Government of Canada on a formal agreement for our framework.
We’re also thinking about the best ways to account for things like high debt when we set interest rates.
Often this means weighing the benefits of helping the economy when it’s sluggish against the cost of adding to debt loads and risking further issues down the road. Measures that other authorities have in place can be very important when we’re thinking about these trade-offs.
As an accountable public institution, we are eager to hear your views.
And we’ll also be looking at technological change
Evidence of the spread of new technologies such as artificial intelligence (AI) is everywhere. Some call this a fourth industrial revolution. The effects on the economy, and on how we measure the economy’s performance, could be massive. So, in 2020, we’ll be working on new ways to assess these.
Workers in many industries can expect a big and painful disruption. All policy-makers and the private sector need to work on understanding this transition and how to make it as smooth as possible.
However, adoption of new technologies should eventually boost the economy’s potential to grow, raising living standards. Higher growth potential would also affect inflation.
Technology is changing how Canadians make payments too.
- The Bank will continue working with partners to modernize the technology behind the existing payments systems that we all depend on every day.
- We’re studying whether it might make sense to issue a digital version of our bank notes.
The world of money is evolving very rapidly, so we need to develop plans to deal with whatever contingency arises.
Watch Governor Poloz answer questions from the media following his speech.