The Canadian Bank Says Economy Needs Capacity Investment

The Canadian Bank Says Economy Needs Capacity Investment

On Wednesday, Tiff Macklem, governor of the Bank of Canada, said that the country’s economy doesn’t require additional stimulus; however, more investment from the government and companies to increase supply capacity to meet robust consumer demand. When asked if the government should spend more to stimulate the economy during an audience Q&A session, Macklem responded that Canada is currently in the midst of a consumer-led recovery and that additional capacity investment is required to keep it going.

He went on to say, “Demand now appears to be self-sustaining”. During his election campaign last year, Canadian Prime Minister Justin Trudeau vowed C$78 billion in additional investment over five years to help the country’s economic recovery.

Inflation and Productivity

With inflation already beyond the central bank’s 2% objective, Macklem believes productivity growth is more important than ever. According to him, businesses may assist raise productivity by investing in new technology. He subsequently warned reporters that if Canadian firms do not proceed with planned investments, it might affect the path of rate rises. “If productivity growth is lower, we’ll have less potential output in the economy, less supply capacity development, and, all else being equal, interest rates will have to rise more,” he added.

Canada’s productivity growth has slowed despite a stronger job recovery than the United States. This is due to greater public health laws and lower industry spending, according to Macklem. “Is COVID-19 an opportunity for a U-turn? In my opinion, it does”. The pandemic, according to Macklem, has resulted in a spike in digital investments and remote work. According to Macklem, corporate balance sheets are strong; consumer demand is robust, and demand for Canadian products expands in the United States. Investment intentions among enterprises have been at their highest level since 1999.

Last month, the central bank suggested that it would begin raising rates shortly, claiming that the economy no longer required pandemic-level assistance. The first hike in money markets occurred in March, with six increases this year. The Canadian dollar traded 0.3 percent higher against the US dollar, or 78.93 cents, at 1.2670.