THUNDER BAY, Ont. (Reuters) - Canada’s economy is still running on two speeds, with household spending growth holding up even as sectors linked to low commodity prices struggle, Bank of Canada Deputy Governor Timothy Lane said on Thursday.
Lane reiterated the central bank’s cautious take on Canada’s tepid economy a day after it held interest rates steady and struck a dovish tone in its statement.
While more new firms were starting up and jobs being created in the United States, investment in Canada’s key energy sector has shrunk rapidly, he said.
Lane said policymakers remained data-dependent and ready to change their view if needed.
“We have to be patient. We have to watch the numbers coming in and we have to be very careful ... and not get carried away,” but if there is enough information to change our view, then we change it, said Lane, who was addressing a business group in Thunder Bay, Ontario.
Analysts said the dovish tone of the bank’s closely watched policy statement on Tuesday had opened the door to a possible rate cut, though it still remained a long shot. Most market watchers expect no change in policy until 2018. [CA/POLL]
The bank has repeatedly overestimated export strength and been disappointed when non-energy exports have failed to strengthen enough to take up the slack left by slumping commodities.
But Lane said there were some positive signs as the United States, Canada’s biggest trading partner, recovers.
“Our biggest export market, which is the U.S., is starting to look a lot a brighter than it was, and the Canadian dollar has been pulled down with the price of oil, so it’s now at a much more competitive level,” Lane said.
Housing markets in Vancouver and Toronto were overheated, while other regions had moderated and housing in hard-hit energy regions had slumped, he said, reiterating the bank’s view of a three-speed residential real estate market.
Lane said that with interest rates so low, Canadians had become increasingly indebted over the last seven years, with the amount of debt compared to income “starting to get disturbing.”
“It’s not to say that we’re forecasting some kind of disaster, we’re starting to see a vulnerability there,” Lane said.
The deputy governor said he expects the third quarter to show strong growth as oil production recovers following wildfires in Alberta in May, while the fourth quarter will be softer but above trend.
Reporting by Xiaoli Li in Thunder Bay and Andrea Hopkins and Leah Schnurr in Ottawa; Editing by Bernadette Baum