2018 Economic Outlook for Canada

The 2018 economic outlook for Canada, according to Pierre Cléroux @PierreCleroux VP, Research and Chief Economist, BDC, is strong. The Canadian dollar will hover around $0.80 USD.

2018 Economic Outlook Video by Pierre Cléroux

Hello everyone.

00:45
that keep its governor Stephen poloz up
00:47
at night I had the chance to speak with
00:49
governor polos in an exclusive
00:51
one-on-one interview earlier today
00:53
here’s the first part of our
00:54
conversation governor welcome back to
00:58
the show
00:59
delighted nice to see everyone else has
01:01
begun this year or ended this year begin
01:03
to set us up for next year with the
01:05
economy’s doing great the markets are
01:07
going like gangbusters jobs are being
01:09
added and you come in to throw cold
01:11
water on the whole thing you you found
01:14
stuff that keeps you up at night even as
01:16
the economy is doing so well so that’s a
01:18
bit unfair as I did talked about you
01:20
talked about how well is doing we’ve had
01:22
a great year and you know since I became
01:25
governor it’s really the first really
01:26
good year and all the rest we’ve been
01:29
just playing defense right you know so
01:31
it’s been great to see things coming
01:33
together and our confidence is
01:36
increasing there are still some left
01:38
over things to do you know so we don’t
01:40
want people to forget those things and
01:42
just assume everything’s perfect cuz
01:44
it’s not how important is that part of
01:46
your job though to go and look for where
01:49
the risk is because I think we could be
01:50
blinded by it with everything that is
01:52
going so well right now well I think
01:53
it’s it’s it’s really all I think of
01:55
monetary policy it’s most people think
01:58
of it it’s kind of like an engineering
01:59
exercise when you know what the economy
02:01
is doing you just tweak like this and
02:03
everything’s perfect but in reality we
02:05
don’t know enough to be able to do that
02:07
and if you take that uncertainty into
02:10
your policymaking instead of just
02:12
assuming it
02:13
which is what the previous example does
02:15
then you start thinking about more as a
02:17
risk management exercise right so which
02:20
risk is worst that I face and how do I
02:22
protect against that which risk would
02:24
actually be good and in which case I’ll
02:26
let that go if it happens as you said
02:29
this is the first good year you’ve had
02:30
since since your tenure began has the
02:33
role changed as the economy has started
02:35
to climb back out again were you then
02:38
looking for sort of signs of good in the
02:40
economy to sort of tell us this and it’s
02:42
gonna get better in a couple quarters
02:43
down the road and now it’s shifted a
02:45
little bit you know we we went through a
02:47
phase when I first came which we ended
02:49
up calling serial disappointment Breck
02:51
as we had one step forward and then
02:53
another step back and nothing seemed to
02:55
go in a nice trend and then the oil
02:57
shock hit and of course this was at that
03:01
time we were actually getting quite
03:02
encouraged and men boom aw Christ shock
03:05
meant a two-year delay in that process
03:07
of getting back to where we belong and
03:09
so when I look at it like there’s never
03:12
really been a period that I could call
03:13
typical well you know every every period
03:15
has been unique we’re in a we’re in a
03:18
phase in history which is unique we hope
03:22
it stays unique because it’s a post
03:24
crisis economy where we still have
03:26
legacies legacy effects throughout our
03:29
economy and much even bigger ones in
03:32
other economies so nothing is as what
03:35
usually is is done you said in the
03:38
speech the economy is operating near its
03:40
capacity growth is forecast to run above
03:42
potential and yet at the same time to
03:44
remain slack in the labor market and
03:46
that that poses a downside risk to risk
03:48
inflation is that like having two
03:50
opposing thoughts in your head at the
03:51
same time and is that a big part of it
03:54
is trying to balance out where the good
03:55
is and where the bad well this is what I
03:57
mean by risk management so for us we say
04:00
you know by conventional measures the
04:02
economy is running basically at folk
04:03
full steam but we can see in the labor
04:06
market there is there’s excess capacity
04:09
there this is the sort of divergence
04:12
that happens when you have slow cycles
04:14
like we’ve had normally those things
04:16
would be perfectly correlated with each
04:17
other right and so right now they are so
04:19
what we want is the economy to grow
04:21
hotter for a while so that it uses up
04:24
that access
04:25
see that’s still in the labor market and
04:27
the way that will happen is companies
04:29
won’t invest more create new capacity
04:31
with more people and raise our level GDP
04:35
throughout okay so that’s the process
04:37
what I call a sweet spot that we’re
04:39
watching unfold now and it could last a
04:41
year or something in the US economy
04:44
well last 18 months or so always been in
04:46
that same place and I mean you mentioned
04:48
your three concerns where cyber threats
04:52
what was the other one house and and
04:54
housing prices and indebtedness and then
04:57
of course job concerns for the job
04:59
market for young people do all of those
05:01
sort of rotate around those the you know
05:03
business investment and exports and how
05:05
we as an economy are dealing with those
05:07
two core things well yeah some what some
05:10
do a cyber I think it was an independent
05:12
thing which is not really dependent on
05:15
the cycle or anything like that and but
05:18
the other two are actually longer-term
05:20
issues so they’re you know what we hope
05:22
is that those folks who are young who
05:24
have dropped out of the workforce so
05:26
they’re not counted at unemployment rate
05:28
today will return you know as the
05:31
conditions continue to improve in only
05:32
the last month we saw some signs of that
05:34
so sure so we’re encouraged by that and
05:36
you know there are like four percent of
05:38
them that were in the workforce before
05:40
and aren’t there now in terms of the
05:42
household debt thing a governor can’t
05:45
give a speech without talking about that
05:47
because that’s our number-one concern
05:48
and the fact is we’ve accumulated all
05:52
that in the post-crisis period it was a
05:55
byproduct of the monetary policy we
05:57
followed we understand all that and so
05:59
what we want to do is make sure that we
06:01
don’t do something abroad or in someone
06:03
to put a put our our future outlook in
06:05
danger
06:06
by under estimating how important that
06:08
is it’s important in two ways if
06:10
interest rates are higher today has a
06:12
different effect because of the level of
06:13
debt but secondly the the vulnerability
06:16
is there so that if there were a shock
06:18
like we had in 2008 today the effects
06:21
would be much larger on the economy
06:23
that’s a magnifying effect and so that
06:25
vulnerability becomes an actual risk if
06:27
some some some shock hits and so what we
06:30
want is the economy become more
06:32
resilient more sustainable through time
06:34
hence the changes to the mortgage rules
06:36
etc
06:36
and really quickly on on just sort of
06:38
the direction of things you’re sounding
06:40
a cautionary tone the us pushing ahead
06:42
really quickly and plans to have a
06:44
number of hikes over the next year’s I
06:46
think we’re they’re gonna be up three
06:47
point one percent at three point one
06:49
percent by 2020 can we afford to take
06:51
that cautionary stance as we see a
06:54
divergence in interest rates in the US
06:55
well it’s very important that we have an
06:57
independent monetary policy our
06:59
inflation targets are our inflation
07:00
targets missile witness that back in
07:03
2015 when the oil price shock was really
07:05
having its effecting the economy we cut
07:07
rates twice a year while the Fed raised
07:09
rates so that’s proof that we can have
07:11
an independent policy because that all
07:13
shock were a year or two behind the u.s.
07:15
in the cycle and so we have some more
07:18
time in front of us and so I think we
07:21
can have our independent policy while