Services, Not Manufacturing or Resources, Driving Economic Recovery: Stephen Poloz
Stephen Poloz, the governor of the Bank of Canada, told a Toronto-based think-tank that services, and not manufacturing or resources, will drive Canada’s near term economic growth.
Poloz spoke at a meeting of the C.D. Howe Institute in Toronto on Monday night. He said manufacturing and natural resources remain important parts of the Canadian economy, but it’s been 60 years since the number of Canadians employed in the goods sector surpassed those working in services.
“We have been much more than a nation of hewers of wood and drawers of water for along time, yet the cliché lives on,” Poloz said. “I strongly believe that the continued expansion of our service sector is pointing the way toward full economic recovery and the return of sustained, natural growth.”
Poloz said the bank is confident the economy will find its way back to full output. “As these new sources of growth add up, we will gradually absorb our excess capacity sometime around mid-2018, and inflation will converge on our 2 per cent target from below.”
Earlier Monday, Poloz said in an interview with Bloomberg TV that the Canadian economy would need to go through a “significant drop” to miss that target.
While the growth in services might reflect a trend that has been underway for decades, Poloz told the C.D. Howe meeting he is specifically looking to job and business growth in services to fill the hole left by two shocks that date from the financial crisis of 2008-09. A drop in export capacity and a decrease in resources prices, particularly oil, have pulled between $80 billion to $90 billion out of Canada’s roughly $2 trillion economy.
Poloz said services are already an important source of export growth. In the first half of 2016, Canada was on track to export $100 billion in services, up $25 billion from five years ago. “At a time of sluggish trade growth worldwide, exports of Canadian commercial services such as engineering, research and development, and financial services have grown by more than 5 per cent annually since 2000,” he said.
Despite his views on the rising value of services, he said resources will remain a significant part of the Canadian economy. The growth of services, he said, has more to do with Canada becoming a more diversified economy than leaving resources behind. “People sometimes seem to lose sight of the fact that it is much better for a diversified economy to have a significant endowment of natural resources than not.”