VANCOUVER, March 21 (Reuters) - The Bank of Canada remains concerned about tepid business investment, a key official said on Tuesday, adding it is too early to assume the worst of underperformance is over despite stronger-than-expected economic growth recently.
Deputy Governor Lawrence Schembri said sluggish business investment and a shift towards protectionist trade policies in the United States are the two biggest downside risks to the bank’s inflation outlook, reiterating that material slack remains in Canada.
While fourth-quarter GDP data came in “somewhat stronger” than the bank anticipated in January, Schembri highlighted the divergence in both growth and monetary policy between Canada and the United States, where “U.S. authorities have now begun to tighten” interest rates.
“While the headline (GDP) number is welcome news, a more detailed analysis suggests continued scope for caution. Exports continue to face ongoing competitiveness challenges,” Schembri said in prepared remarks to the Greater Vancouver Board of Trade.
“Although the Canadian economy has made good progress adjusting to the oil price shock, material slack in our economy remains, in contrast to the U.S. economy, which is approaching its productive capacity,” he added. (Reporting by Andrea Hopkins; Editing by Chizu Nomiyama)