Coronavirus slows down economic recovery, says Bank of Canada governor – National


The Canadian economy could contract in the first quarter of 2021, with rising COVID-19 infections slowing short-term growth, Bank of Canada Governor Tiff Macklem said on Tuesday.
Macklem, speaking to reporters after a speech, said that while the arrival of effective vaccines had created more clarity about the end of the pandemic, the worsening of the second wave put a “blow” to the recovery.

“In the short term, the situation clearly looks more difficult, the infections are spreading,” he said. “We expect this to weigh on growth in the first quarter … the first quarter may even turn negative.”

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Bank of Canada keeps key rate on hold, warns 2021 to have tough economic start

He later said the recent momentum would likely mean fourth-quarter economic growth above the 1% forecast by the central bank in its October Monetary Policy Report (MPR).

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Macklem declined to say whether a faster vaccine rollout would bring the economic slowdown to a halt earlier than in 2023, as predicted in that same MPR, recalling that all factors would be taken into account before a January update.

The Bank of Canada said rates will stay at their effective lower limit of 0.25% until the economic downturn is absorbed and inflation returns to its 2% target.

Earlier in his speech to a business audience, Macklem said household spending has so far led the recovery. But to be sustainable, Canada would need to boost exports, productivity and business investment.

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Bank of Canada invests in consumer spending for pandemic recovery

Bank of Canada invests in consumer spending for pandemic recovery – October 28, 2020

While exports and business investment may rebound faster than after the 2008 global financial crisis, Macklem warned that service exports would struggle until a vaccine is widely available.

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“I would like to stress, however, that the arrival of new effective vaccines is an extremely positive development,” he said. “It really means we’re going to get over this.”

Macklem, however, expressed concern about the strengthening of the Canadian dollar, saying it was hurting Canadian exports to the crucial US market.

“For the most part, this assessment does not reflect factors of Canadian origin,” he later told reporters. “This largely reflects a widespread depreciation of the US dollar.”

The Canadian dollar held near its highest level in over 2 1/2 years at 1.2688, or 78.81 cents US, after the speech.


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