BoC won’t speculate on NAFTA outcome, resists in-depth study of possible fallout
Stephen Poloz, the Bank of Canada's governor, said any attempt to study the ramifications of a sudden demise of NAFTA would only fuel speculation. He also suggested firms manage to adjust to major market shocks on a regular basis
OTTAWA—The governor of the Bank of Canada says that to avoid fuelling speculation, the central bank is resisting any in-depth study of what the sudden death of the North America Free Trade Agreement could mean for the Canadian economy.
Stephen Poloz says the bank would itself be engaging in speculation about what would happen if the deal collapsed.
Analysts at the bank intend to wait until there is something firm—namely if and when Congress grants any request by U.S. President Donald Trump to terminate NAFTA—before outlining how such a move would impact Canadian businesses and the wider economy.
“We have not analyzed this for one important reason: we simply don’t want to be making statements about the consequences and so on when we’re in the midst of some important and sensitive negotiations between governments,” Poloz said Nov. 1 during an appearance at the Senate’s banking committee.
The uncertainty around NAFTA played into the bank’s latest expectations for the Canadian economy. In a report last month, the central bank forecasted Canada’s economy would expand over the next two years, but not as much in 2019 as had previously been predicted.
Senators were told that businesses are scaling back their investment plans as a result of the uncertainty around NAFTA talks, which ended on a sour note after the latest round of negotiations showed all sides seem to be far apart.
The forecasts don’t take into account a change in free trade rules or Trump’s tax plan—nor will they, until analysts see the details and can calculate the magnitude of their impacts, Poloz said.
If tariffs reappeared on many goods crossing the borders, specifically about four per cent based on World Trade Organization rules, the impact on Canada may be small, he added. Four per cent is smaller than the changes in the value of the loonie over the past six months, Poloz said.
“It’s important to keep it in perspective. Firms adjust to shocks of that magnitude all the time and so we shouldn’t get carried away with this sort of analysis. We try to be reasonable about it.”
Poloz said companies are telling him they are thinking through all the pieces that would fall if free trade with the United States and Mexico vanished, including the value of the Canadian dollar, and will adjust if and when something happens.