Forecast modelling is not all it’s cracked up to be, Canada’s new central bank chief says. So he’s employing a new tool: talking to “realpeople”. And the real people of most interest to Stephen Poloz are Canada’s corporate chiefs who, in his view, hold the key to a more robust economy.
Just weeks into the job, Mr Poloz’s way of talking about the economy and the role of business in it reveals a world view that appears in sync with that of the private sector, which has been reluctant to sink money into new projects until there are guarantees that the global economy is safe.
With business investment lagging the overall recovery from the 2008-09 recession, his predecessor Mark Carney at one point chided companies for sitting on what he called “dead money”. Mr Poloz clearly sympathises with the corporate view. “I would be cautious too,” he told reporters recently.
The goal is for businesses to loosen their grip on some half a trillion dollars in cash and invest the money to help boost growth. But it won’t be easy.
“People were badly burned at the time of the recession and as a consequence businesses have built up their cash reserves,” said Perrin Beatty, chief executive of the Canadian Chamber of Commerce and a former Conservative cabinet minister. “Confidence is at a higher level than it was at this point last year. But do people feel we’re clearly out of the woods? No.”
Business investment in Canada is growing more slowly than after previous recessions.
Investment growth unexpectedly slowed in the second half of 2012 and spending intentions at the start of 2013 were the weakest since 2009, a central bank survey showed.
The slump was concen-trated in the oil and gas and mining sectors, which represent about one-third of all business investment, with firms blaming uncer-tainty about global demand and pricing.
Nobody expects a major shift in monetary policy under Mr Poloz. Interest rates have been steady at one per cent since mid-2010 and he emphasised in his first speech last month that he likely won’t cut rates.
The best thing to do, he believes, is sit and wait for the US and other export markets to strengthen. It’s a hands-off approach that meshes with that of the Conservative government that appointed him and which wants the private sector to drive growth.
But it may not sit well with those who want more urgent attention to problems like record-high per-sonal debt or a jobless rate that remains above precrisis levels.
Preaching patience in his first speech, Mr Poloz stressed that the first step to recovery was something Canadian policymakers had no control over: more US demand for Canadian goods.
Only after exports recover will business confidence improve, followed by more investment and then new businesses starting up, in that order. It’s just a matter of time, he said.
It’s a line of thinking that industry lobby groups have cited for months.