Evidence of meeting #81 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was jean.
A recording is available from Parliament.
11:25 a.m.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
No, Mr. Chair, the interpreter is signalling that the sound quality is poor.
11:25 a.m.
Liberal
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
I could just make myself available for questions, if you want.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Okay. I think they can hear the sound. Can you push your boom mike out a little, away from your mouth?
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Okay. Also, in terms of the pace of your speaking, please slow it down a little, and that will also help the interpreters.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Maybe we could try again. Let's see how things go, and we'll see if this works or not. Go ahead.
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
So the good news is that following the adjustments made by fiscal and monetary authorities over the past year, inflation is coming down. I fully expect it to return this summer to the 1% to 3% range set by the National Bank of Canada.
In the longer term, however, I remain convinced that the main challenge to keeping inflation at an acceptable level is to tackle the poor productivity performance of our economy.
Canada is simply lagging behind in terms of growth and capital stock—
11:30 a.m.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
Mr. Chair, I have a point of order.
The interpreters are reporting once again that they can't do their work.
11:30 a.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
Tell him to speak in French, because the English interpretation is fine.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Maybe we'll try this. Monsieur Marion, please speak just in French. That may be a little easier on the interpreters, and it may work.
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
I'm going to talk about the five charts that I distributed, if you have received them.
Can you confirm that you have those charts?
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
First, the recession during the pandemic was unprecedented because the household support measures more than offset job losses, making disposable income grow at a frantic pace in both Canada and the United States. It was an unprecedented environment, combined with a highly flexible monetary policy.
The context was one in which the economy's production capacity was rising much faster than its supply capacity, the end result of which was that inflation ended up at 8%.
Are we still good?
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
After peaking at 8%, inflation is dropping and currently sits at 5.2%. Canada is one of the few countries where monetary policy can have an impact on inflation because mortgage rate hikes are reflected in inflation. If mortgage rate increases are excluded, inflation is now at 4.8%. I fully expect it to drop to 3% this summer.
I'm going to address the issue of house prices right now. In response to the earlier question, house prices during the pandemic in the United States increased by 45%, compared to 40% in Canada. With the interest rate hikes in Canada over the past few quarters, housing prices have been dropping—
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Monsieur Marion, the sound is still not of good enough quality that we can continue.
11:30 a.m.
Chief Economist and Strategist, National Bank of Canada
Okay. I apologize for that.
I'll be here for questions, if possible.
11:30 a.m.
Liberal
The Chair Liberal Peter Fonseca
Okay. Thank you.
We will get back to questions.
We'll go to the Liberals and Mr. Baker for six minutes, please.
11:30 a.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you very much.
I'd like to thank all the witnesses.
Mr. Gregory, I want to start by asking if you could comment on the issue of the resilience of our banking sector here in Canada. I think many Canadians are seeing news about the volatility in the banks globally, and stories surrounding Credit Suisse or Silicon Valley Bank in particular. I think many Canadians, including many people in my community in Etobicoke Centre, are concerned about or questioning whether the banking system here in Canada is stable.
Could you speak to the resiliency and strength of our banks and financial institutions here in Canada?
11:35 a.m.
Managing Director, Deputy Chief Economist and Head of U.S. Economics, BMO Capital Markets
There's no question that what's happening south of the border is a major source of uncertainty. It's not just the institutions that get mentioned a lot—the couple that collapsed a couple of weeks ago. This has rippled through the entire mid-range banking segment, the smaller and regional banks that are all experiencing some degree of liquidity pressures and the exiting of deposits, which will affect the supply of credit in the U.S. economy from this particular segment. To quickly put that into perspective, more than two-thirds of the credit that goes into commercial real estate in the United States comes through smaller banks, not the top 25. So there's going to be some shakeup from this further.
The important thing to keep in mind, though, is that north of the border, Canadian banks are considered by organizations such as the World Economic Forum to be among the safest and soundest in the world. Canadian banks are very well capitalized. For any kind of metrics that they're supposed to have, they're running at or above whatever domestic or international standards are required. They're well regulated and, importantly, well run.
It's true that in a global issue it's going to affect everybody, but even as we saw in the global financial crisis, credit continued to flow in the Canadian economy. I think that is an important testament to the resilience of the Canadian banking sector.
11:35 a.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you very much for that.
Mr. Jean, did you want to add anything on this topic?
Many of my fellow citizens have been asking questions about the resilience of our banking system for a variety of reasons, including reports on what happened with Credit Suisse Group AG and Silicon Valley Bank in the United States.
Could you comment on the resilience and stability of the financial banking system here in Canada?
11:35 a.m.
Vice-President, Strategist and Chief Economist, Desjardins Group
As I mentioned earlier, our banking ecosystem is not the same as in the United States. We have strict regulation, which was further strengthened after 2008 and 2009. It's important to remember that in the United States, measures to reduce regulation were introduced under the previous U.S. administration . That was also part of the equation. The structure of our financial institutions is not as focused on certain markets, more specifically in this instance, the technology market. The deposit diversification and matching aspect is not seen in Canada. Basically, it's a problem of matching. The important aspect underpinning all of this is of course capitalization.
Debt is high in industry and the housing sector, but on the other hand, our banking system is more solid than elsewhere. We aren't worried about what is happening and we're not afraid of scenarios like this playing out in Canada. That doesn't mean that there won't be economic events like those in 2008 and 2009. While our banks held up, we nevertheless felt the impact, although indirect, of what was happening around the world.
As for the strengths of Canadian banks and financial institutions in general, including the Desjardins Group, we have no qualms.
11:35 a.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you very much.
Mr. Gregory, in your opening presentation you spoke about what contributed to inflation in Canada and around the world, but particularly in Canada and the United States. Could you recap for us what some of those factors are? In particular, what caused the spike in inflation?
If we have time—I have about a minute and a half left—I have a follow-up as well.