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Canada has more room to grow than U.S.: Bank of Canada's Poloz

Published 03/28/2017, 11:27 AM
Updated 03/28/2017, 11:31 AM
© Reuters. FILE PHOTO --  Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa

© Reuters. FILE PHOTO -- Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa

By David Ljunggren and Alastair Sharp

OSHAWA, Ontario (Reuters) - Canada's economy has a lot more room to grow, with higher unemployment and more excess capacity than the United States, and if interest rates were raised today Canada would tip into recession, Bank of Canada Governor Stephen Poloz said on Tuesday.

In response to a question about interest rate hikes by the U.S. Federal Reserve, Poloz said the two countries share a similar growth path, but Canada has a lot more room to grow because it has not recovered fully from the oil price shock.

"It is why the interest rate is quite low now, is to give the economy extra room to grow ... if we were to raise interest rates back to normal prematurely, like today, the economy would, I'm certain, have a recession," Poloz said.

The Bank of Canada lowered rates twice in 2015 and policymakers have said they don't expect Canada to reach full economic capacity to close the output gap, until sometime around mid-2018. Economists largely expect the bank will not move rates until 2018. [CA/POLL]

Poloz's comments followed a speech in which he said Canada must continue to push for open markets because the costs of protectionism are steep, pushing back against rising anti-trade sentiment in both the United States and Europe.

The central bank governor said there is a direct correlation between economic progress and openness, and pointed to trade, immigration and foreign investment as necessary ingredients to Canada's prosperity.

"Protectionism does not promote growth and its costs are steep," Poloz said in remarks to Durham College in his hometown of Oshawa, in Canada's manufacturing heartland.

"So there are compelling reasons why Canada should continue pushing for open markets, both here and abroad."

Still, the central banker acknowledged the benefits of free trade must be shared to counter the negative impact that workers in specific industries feel from automation and competition.

"Failing to do so invites doubt and puts everyone's progress at stake," he said.

A backlash against free trade and job losses, particularly in manufacturing, was seen as a driving factor behind some of the support for U.S. President Donald Trump and the Brexit campaign.

© Reuters. FILE PHOTO --  Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa

Trump's vow to renegotiate the North American Free Trade Agreement has caused concern in Canada and Mexico. The United States is Canada's largest trading partner, taking some 75 percent of its exports.

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