Bank of Canada stumped by ‘puzzle’ of stalled exports
By Randall Palmer and Leah Schnurr
OTTAWA (Reuters) - If anyone has an explanation why Canada's exports disappointed in the second quarter, the country’s central bank governor would like to know.
The Bank of Canada cut interest rates by a quarter point on Wednesday for the second time this year as the economy contracted in the first half after the anticipated pick up in non-energy exports failed to arrive.
"The extent of the weakness is puzzling," the central bank said, as non-energy exports turned out to be weaker than could be explained by bad U.S. weather and general commodity weakness.
"We can attribute some of this. But a bunch of it we can't," Governor Stephen Poloz told reporters.
Poloz, former head of the federal export development agency, speculated some of the problem may have been due to first quarter weakness in the United States, by far Canada's top export market, partly due to a West Coast port strike and inclement weather.
When the bank stunned markets with a rate cut in January, Poloz at the time voiced optimism that the easing should sufficiently protect Canada's economy against any further headwinds.
One of the things that have also changed since then was the extent to which oil companies have cut their investment plans in response to the crude price slump, Poloz said.
Some analysts, however, see a pattern in recent years where the bank would be too optimistic in its forecasts and end up repeatedly pushing out the timing of when it expected the economy to return to full potential and inflation to its target. Continued...