The pandemic will inflict lasting damage to the economy, according to Tiff Macklem

Photo: Sean Kilpatrick, The canadian Press
The governor of the Bank of Canada, Tiff Macklem

The governor of the Bank of Canada said on Monday that the pandemic COVID-19 would result in economic damage in the long term, and warned that the recovery would be ” likely to be long and saw-tooth “.

In his first speech since coming to office, and Tiff Macklem said the central bank was expected to observe a growth in the third quarter of this year, while the Canadians are called back to work and that households are regaining some of their normal activities to the extent that the restrictions are relaxed.

But he warns that Canadians should not expect that this brief economic rebound pronounced stretches beyond the reopening period.

With the combination of re-openings uneven between the provinces and the industries and the current unknown of the consumer confidence and the unemployment rate, the pandemic, “hurt a long time in supply and demand,” said Mr. Macklem, in the text of a speech Monday.

According to him, the rules of detachment physics in the course may mean that the workplace may not be not as productive as before, and that many services will be hard to provide.

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This combination suggests that the production capacity of the economy will suffer a blow that will persist even if the limitations of public health are softening, ” said Mr. Macklem, in a speech broadcast on the web for canadian clubs and Canadian clubs.

“The recovery will probably be long and serrate. We will know may also be setbacks “, he said in a text of the speech published by the bank.

Mr. Macklem has argued that the pandemic COVID-19 had created an economic shock unlike anything we have seen in our lifetime. Whole sectors of the economy have closed their doors, more than three million people have lost their jobs in April and even more have seen their hours reduced.

“With the reopening of the economy, we should see strong employment growth. We should also see the stimulating effect of increased demand on spending, ” said Mr. Macklem in his speech.

“However, not all of them will not have their employment and it will remain uncertainty. “

Downward pressure on inflation

In response to the pandemic, the central bank has lowered its key rate to 0.25 %, which, according to Mr. Macklem, is the lowest level possible.

The Bank of Canada has also launched a programme of buying bonds and government debt to support the markets and make borrowing cheaper for households and businesses.

These purchases, measures known as quantitative easing, also send a signal that the key rate of the bank ” will probably remain low for some time “, he explained.

For the Bank of Canada, the impact of interest rates structurally low, and the magnitude of the shock “are changing the way we apply our framework for monetary policy,” noted the governor.

The central bank aims for annual inflation as close as possible to 2.0 per cent, as measured by the index of consumer prices, Statistics Canada.

The basket of goods used to form the index has been shaken by the changes in habits of consumption during the pandemic. People are spending less for gasoline, which is generally more present in the calculation of the inflation, because its price has dipped, and the frequency of car trips has decreased. Expenses are also down for travel, while grocery expenses are rising.

Last week, Statistics Canada announced that the annual rate of inflation was 0.4% in may, and this was a second consecutive month annual inflation was negative. Inflation was set at 0.2% in April.

Mr. Macklem said that the Bank of Canada would provide “a central scenario for the evolution of output and inflation, with an analysis of the main risks to this scenario” when it publishes the update of its monetary policy Report next month.

“If, as expected, supply is recovering faster than the demand, there will then be a significant gap between these two variables and the downward pressures on inflation will be very important,” said Mr. Macklem.

“By helping Canadians to return to work, we want to avoid a continuing decline of inflation, and that is our main concern. “

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