By Gordon Isfeld
OTTAWA (MaceNews) – Global economic tension amid ongoing trade disputes, in particular the growing conflict between the United States and China, has led to weaker business investment overall, the Bank of Canada warned Wednesday.
“Canada’s economy is operating close to potential and inflation is on target,” the country`s central bank said in its Sept. 4 statement.
“However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the general degree of monetary policy stimulus remains appropriate,” the BoC said, which has taken a wait-and-see view of monetary policy.
“As the U.S.-China trade conflict has escalated, world trade has contracted and business investment has weakened. This is weighing more heavily on global economic momentum than the bank had projected in July.”
Even so, Canada`s economic growth in the second quarter “was strong and exceeded the bank’s July expectation, although some of this strength is expected to be temporary,” the central bank noted.
Most private-sector economists do not anticipate a change soon in the BoC’s key lending level, which has been at 1.75 per cent since October 2018. Policymakers have taken a wait-and-see approach in adjusting the bank`s borrowing costs.
The Bank of Canada, led by Governor Stephen Poloz, “will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation,” policymakers said in Wednesday’s statement, adding that “commodity prices have drifted down as concerns about global growth prospects have increased.”
“These concerns, combined with policy responses by some central banks, have pushed bond yields to historic lows and inverted yield curves in a number of economies, including Canada.”
Meanwhile, growth in Canada’s second-quarter output was stronger than expected. “The rebound was driven by stronger energy production and robust export growth, both recovering from very weak performance in the first quarter,” the central bank noted.
At the same time, the country’s inflation reading is at two per cent – right on target between the BoC`s one-per-cent and three-per-cent comfort zone.
Also, the pace of housing activity has regained strength more quickly than expected as resales and housing starts catch up to underlying demand, supported by lower mortgage rates.
However, the Bank of Canada is concerned that already high household debt levels “could be a cause of concern in the near future.”