It exaggerates the scale of the crisis, says Stephen Poloz

On exagère l’ampleur de la crise, dit Stephen Poloz

Photo: Justin Tang, The canadian Press
Stephen Poloz continues to see a country that follows the optimistic scenario that he presented last month in the “Report on monetary policy.”

To the extent that it is ready to the current economic crisis is “a little overdone,” said Stephen Poloz.

“I believe that, on balance, the wave of the [pessimism] I hear is a little too extreme. It is a little bit exaggerated “, said, Thursday, the governor of the Bank of Canada on the economic impact of the pandemic coronavirus during a virtual round table with a few journalists.

The problem, he explained, in particular, just our usual practice to use indicators such as the gross domestic product (GDP) to get an idea of the state of the economy. When it is predicted, as in the past few weeks, as the pandemic of sars coronavirus will cause a fall of 15 % of the canadian GDP only in the second quarter, we immediately think of an economic shock terrible that it is hard to see how it will.

“But we are not in a normal recession, noted the economist, which, at the end of a term of 7 years, will relinquish his place at the head of the canadian central bank in less than two weeks, and Tiff Macklem. The fall in GDP does not reflect a profound change in the behaviour or the confidence of economic actors. The government have put the economy on pause. “When they rise from their containment,” we can expect a rapid return to activity “.

It will be understood, Stephen Poloz continues to see a country that follows the optimistic scenario that he presented last month in the monetary policy Report. This is due, he believes, among other things, to the fact that “we was able to draw lessons from the financial crisis of 2008,” and that the financial sector is entered in the current health crisis with a strong foundation. This is also the monetary measures adopted by the Bank of Canada to ensure the necessary liquidity to financial markets, but especially to the programs of emergency financial assistance put in place by governments to keep the head of workers and enterprises out of the water for the containment.


The dashboard on the evolution of the coronavirus in Quebec, in Canada and in the world

We knew from the start, recalls Stephen Poloz, that even ten years after the last crisis, the rising interest rates of the central banks was not sufficient to enable them, if need be, to revive the economy by reducing. The use of new tools of monetary intervention, such as the injection of liquidity, was not going to be enough either. The bulk of the work of economic stimulus would be required to be made by governments.

However, new programs such as Providing canadian emergency (PKU) were found to be remarkably effective and much more able to adjust rapidly to the evolution of the economic situation that other programs, such as employment insurance, said the governor. The governments would have any interest, according to him, to keep such types of measures in their tool boxes for the recessions to come.

It is true that all this will not fail to swell the public debt in the next few years, but Canada is still in a fairly good situation in this chapter.

It may also be that a second wave of pandemic COVID-19 come and smite the canadian economy, admits Stephen Poloz, in which case it will rather prepare for the realization of his worst-case scenario of the last month. There was a question of destruction of businesses and jobs to such an extent in Canada that its economic activity could not regain its level from before the pandemic even beyond 2022.

Whatever happens, companies will fall unfortunately in the battle, says the governor. But we can hope that other more dynamic and innovative will be reborn of these ashes, in what economists call the process of ” creative destruction “.

The dream job

Stephen Poloz will hand over officially the place to his successor at the next announcement of the overnight rate, the 3 June. This rate is for the month of march to its lowest level of 0.25 %.

Having often said that he was ” his dream job “, he said in a proud, Thursday, having helped to put the canadian economy on its rails, for the first time after the last financial crisis, and a second time after the collapse of oil prices in 2015. He remembers with pain the first time where the markets and the media disséquaient word-for-word each of his words to believe to see changes of direction where there was not. “This has been difficult, but we finally convince them to lend rather attention to the data on which were based our points of view. “

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