Committed to a better Canada: The Bank of Canada’s role in challenging economic times

Remarks to the Thunder Bay Chamber of Commerce Thunder Bay, Ontario 8 September 2016

Timothy Lane Deputy Governor

Bank of Canada

Overview

Canada’s economic outlook

What the Bank of Canada does to promote the economic and financial welfare of Canada

Economic outlook

Several trends affect Canada’s economy

Two-speed economy – Commodity price shock – Two different housing markets

Long recovery from the 2008 recession – US economy to provide lift to Canadian economy, but

exports disappointing – Inflation close to target

Longer-term trends at work – Demographics – Lower rates of economic growth

Canada’s economy is running on two speeds

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96

98

100

102

104

106

108

110

2013 2014 2015 2016

Index

Industries most affected by commodity prices (13 per cent of GDP) Rest of the economy (87 per cent of GDP)

3-month moving average; index: January 2013 = 100, monthly data

Last observation: May 2016 Sources: Statistics Canada and Bank of Canada calculations

2.1

-6.5

Latest year-over-year

percentage change

Household spending growth has held up at the national level, despite weakness in energy-producing provinces

-30

-20

-10

0

10

20

30

-6

-4

-2

0

2

4

6

Employment(Survey of Employment, Payrolls

and Hours,left scale)

Retail sales(nominal, left scale)

Housing resales (right scale)

% %

National Energy-producing provinces Rest of Canada

Percentage change since November 2014, monthly data

Last observations: Employment and retail sales: June 2016;

housing resales: July 2016 Sources: Statistics Canada and Bank of Canada calculations

Note: The energy-producing provinces are Alberta, Saskatchewan and Newfoundland and Labrador.

Canada’s economic growth is uneven

-6

-4

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0

2

4

6

-6

-4

-2

0

2

4

6

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Percentage points %

Business fixed investment (right scale)

Exports (right scale)

Other components of GDP (consumption, housing, government, inventories and imports; right scale)

GDP growth, quarterly, at annual rates (left scale)

Potential output growth, quarterly, at annual rates (left scale)

Contribution to real GDP growth, quarterly data

Last data plotted: 2016Q3 Note: From the July Monetary Policy Report

Sources: Statistics Canada and Bank of Canada estimates and calculations

2014 2015 2016

Canada’s labour market is still recovering

2

4

6

8

10

0.0

0.5

1.0

1.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% %

Long-term unemployment rateᵃ (left scale)

Unemployment rate (right scale)

Percentage of involuntary part-time workers (right scale)

12-month moving average, monthly data

Last observation: July 2016

Sources: Statistics Canada and Bank of Canada calculations

a. Individuals who are unemployed for 53 weeks or more

Note: Series shown are expressed as a percentage of the labour force.

In the US, more new firms are starting up and jobs are being created

-1.5

0.0

1.5

3.0

4.5

150

300

450

600

750

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% Thousands

Initial claims for unemployment insurance (left scale)

Job openings rate (right scale)

Number of establishments (right scale, year-over-year percentage change)

Quarterly data

Last observations:

Establishments, 2015Q4;

job openings, 2016Q1;

unemployment insurance, 2016Q2 Sources: US Department of Labor and US Bureau of Labor Statistics via Haver Analytics

Note: The number of establishments includes those created by new and existing firms.

Many commodity prices remain low

0

20

40

60

80

100

120

140

2014 2015 2016

Index

Energy Base metals Agricultural products Forestry products

July Report

Index: January 2014 = 100, daily data

Last observation: 22 August 2016 Source: Bank of Canada

Investment in the energy sector has shrunk rapidly

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%

Investment in the oil and gas sector as a share of nominal GDP, annual data

Note: From the July Monetary Policy Report

Sources: Statistics Canada and Bank of Canada calculations, estimates and projections

The economy is still operating below potential

-5

-4

-3

-2

-1

0

1

2

3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

%

Structural approach Statistical approach

Excess capacity in the Canadian economy, quarterly data

Last data plotted: 2016Q2 Source: Bank of Canada

Note: Estimates for the second quarter of 2016 are based on a decline in output of 1.0 per cent (at annual rates) for the quarter.

Mandate

The Bank’s mandate

The Bank of Canada’s mandate is to contribute to the economic well-being of Canadians.

Four key responsibilities: Monetary policy

Financial system

Currency

Funds management

Responsibility 1: Monetary policy to achieve low and stable inflation

February 1991

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0

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12

14

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

%

Inflation control range CPI inflation Inflation target

12-month rate of increase, monthly data

Last observation: July 2016 Sources: Statistics Canada and Bank of Canada calculations

Inflation-control range

Central bank policy rates are at historic lows

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016

%

Canada United States Euro area Japan

Last observation: 23 August 2016

Sources: Bank of Canada, US Federal Reserve, European Central Bank and Bank of Japan

Daily data

Responsibility 2: To promote the stability and efficiency of the financial system

Major efforts under way to make financial systems more resilient in wake of global financial crisis

In Canada, Bank shares responsibility for financial stability with other national and provincial agencies

Responsibility 3: Bank notes Canadians can use with confidence

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leaf window

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The Next Series will feature a Bank NOTE-able Woman

Responsibility 4: Funds management

Manage Canada’s foreign exchange reserves and federal government’s cash balances as well as public debt with the Department of Finance

Provide the means of final settlement of daily flows of payments among financial institutions

Canada Savings Bonds Program

Economic outlook summary

Two-speed Canadian economy

Long recovery from recession

Longer-term global economic trends at work