Evidence of meeting #55 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was economy.
A video is available from Parliament.
11:50 a.m.
Conservative
The Chair Conservative James Rajotte
Okay. I appreciate that.
We have a brief round for Mr. Cullen, and it will be the final round.
11:50 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you, Chair.
Governor, is there a compounding concern and some thought from the bank, with the headwinds coming from Europe and some of the new numbers coming out of China and some tailwinds coming from the U.S. that these could offset one another in the Canadian economy?
11:50 a.m.
Governor, Bank of Canada
In principle they are roughly offsetting at this stage.
As for updating our view, our view really didn't change that much overall. It was slightly downgraded globally. In other words, the headwinds were a little more than the upgrade from the U.S., but they are offsetting fundamentally, yes.
11:50 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Is labour force participation of interest in the bank, and are there identifiable groups whose labour participation we need to increase in the Canadian economy?
11:50 a.m.
Governor, Bank of Canada
It's absolutely of interest to us, because it drives the potential growth of the economy, and so we watch it with much care. When we see elements such as we discussed earlier around youth and so on, we know that this is lost potential, which we would hope to see reversed through time.
11:50 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Does the bank pay attention to women's labour force participation at all? Is that something you study?
11:50 a.m.
Governor, Bank of Canada
Absolutely. All of our analysis is done, for all the data that comes out, by gender, by age group, etc.
11:50 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Is there a threat of de-leveraging that holds your hand when it comes to interest rates? We have very high personal indebtedness. We have high house prices in Canada. Does that stay the hand of the bank and influence you when you are setting interest rates, knowing that a de-leveraging threat exists in Canada such as was exposed in the U.S.?
11:55 a.m.
Governor, Bank of Canada
It is certainly a factor for us to take into account. We believe if we were to raise interest rates now, they would have a larger impact, for the reason you suggest, than they would in normal times, say five or ten years ago, precisely because households are more indebted. The sensitivity of the economy has changed because of where we are.
11:55 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
I want to question you about that sensitivity.
There are many factors that affect the level at which you set the interest rate and that therefore affect commercial lending. One concern we've had is about the ability to move money through the economy in reinvestment. I sympathize with the comments from the chair with respect to there being uncertainty.
If these factors are staying your hand, this de-leveraging threat that Canadians owe a lot of money—the personal debt rates and household rates—there would be a shock to the system if the bank were to raise rates right now, just because of those two factors, personal indebtedness and the mortgage rates that people are paying right now. Is that a fair comment to make?
11:55 a.m.
Governor, Bank of Canada
I don't perceive it as some sort of constraint on monetary policy, but rather as something we would need to take into account through our models, as we normally would do. It would mean, all other things being equal, a different trajectory for the economy and inflation, depending on the inputs.
11:55 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
As a last question, with respect to that headwind-tailwind factor concerning the U.S., China, and Europe, because the U.S. is in part so reliant also on the strength or lack of strength in the Chinese economy, can there be a compounding effect if China continues to downgrade its economic performance, in that the U.S. also tails off and that what was a tailwind turns into a headwind for the Canadian economy?
11:55 a.m.
Governor, Bank of Canada
It remains an open question how much of the downgrading of the rest of the world feeds back upon the U.S. It is a separate channel.
You're absolutely right, but I would remind you that today China's economy is massively bigger than it was five years ago. As a result, 6% feels just the way 7% formerly did. It's important for us to remember that.
Companies that I talk to aren't particularly worried. Their order books are strong.
11:55 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. Cullen.
Governor Poloz, Senior Deputy Governor Wilkins, thank you so much for being with us. We appreciate your time here. If there's anything further you wish the committee to consider, please submit it.