BoC’s Poloz cautious about healthy economic numbers, welcomes NAFTA ‘dust off’

OTTAWA—The head of the Bank of Canada says he is still keeping a close eye on risks to the economy even after a string of healthier-than-expected numbers.

The remarks by Governor Stephen Poloz on Tuesday followed a speech in Oshawa, Ont., where he made the case for a policy mix frequently promoted by the federal government—an openness to more foreign investment, immigration and free trade.

He was asked about an encouraging data run in recent months for growth, trade and the labour market—and whether they had altered the central bank’s thinking ahead of its April 12 policy decision.

“It would be odd to forget about all those downside risks just because a couple of data points came in a little bit better than expected,” Poloz told reporters at Durham College in his hometown east of Toronto.

“We’ve had positive data points in the last three years, too—and they didn’t last. So, we’re being very cautious in that outlook.”

In January, Poloz said the door was open to a possible interest-rate cut because of the unknowns surrounding the U.S. trade agenda and the still-sluggish Canadian economy.

When asked Tuesday if a cut was still under consideration, Poloz replied that there were “important potential downside risks that we need to keep on the table until they’re clear.”

Along with its scheduled rate announcement, the bank will also release its latest economic projections April 12.

The fresh predictions will land under a large cloud of U.S.-related uncertainty.

Canada’s economic concerns are tied to a list of changes being discussed by the Trump administration. The possibilities include a border adjustment tax and corporate and personal tax cuts that some fear, if implemented, could hamstring Canadian competitiveness.

President Donald Trump’s demand to renegotiate the North American Free Trade Agreement has also created worries on the north side of the border.

Poloz praised NAFTA in his speech Tuesday for eliminating tariffs and creating benefits in some sectors, which he said more than offset losses in other areas. He said consumers now have more buying power because of lower prices.

However, while fielding a question from the audience after the speech, Poloz acknowledged the decades-old deal could use a “dust-off.”

“NAFTA is 24 years old and so there are things in NAFTA that are incomplete,” he told the crowd in Oshawa, his hometown.

“Softwood lumber is not in NAFTA, the rules of origin are pretty complicated and so on. So, there may be things that can be done to improve NAFTA.”

Poloz repeatedly defended free trade in his remarks Tuesday—and said tougher, tariff-heavy periods in Canada’s past have provided evidence of the “steep” costs of protectionism.

He also made several efforts to address workers who blame globalization for job losses.

Poloz argued that labour-market declines in some sectors should be blamed more on progress than free trade.

“Whenever there is technological innovation, although it may displace jobs in specific areas of the economy, it creates new jobs in other areas of the economy—and actually creates more jobs than it displaces,” said Poloz, as he appeared in Ontario’s manufacturing heartland, which has been hit hard in recent years by the shifting economy.

“There’s no reason to think that wouldn’t be the case in this era.”

Poloz stressed that he recognized such changes don’t make it easier for someone who has to transition to a new career.

In his speech, he insisted that remaining open to the world—through the pursuit of more free trade, immigration and foreign investment—has benefited Canada throughout its history.

Canada, he argued, has seen these ingredients produce positive economic results in its past, including the freer-market colonial times, the early 1900s and the post-Second World War era.

On the other hand, he said periods that saw Canada turn inwards, such as the tariff-heavy years that followed Confederation and the Great Depression, have rarely led to success.

“I find the correlation between economic progress and openness to be striking,” Poloz said.

Poloz also underlined what he described as another successful pursuit of the past that’s often cited by the Trudeau government—the need to attract foreign cash to help Canada fund major infrastructure projects.

Foreign investment was a critical force behind key Canadian projects like the transcontinental railroad, the St. Lawrence Seaway and the Trans-Canada Highway, he said.

On immigration, Poloz noted that “simple arithmetic” shows how important it’s been for Canada.

Looking forward, he highlighted what he called compelling reasons to keep Canada’s borders open. He pointed to a recent Statistics Canada study that predicted Canada would have to rely entirely on immigration in less than 30 years to maintain its population growth.

“When trade barriers are falling, when people are coming to our shores and when investment is rising, Canadians prosper.”