Horror? Romance? Comedy? Stephen Poloz says the Canadian economy is like a movie: Don Pittis

"It's not a picture," said Bank of Canada Governor Stephen Poloz, describing the bank's process of figuring out the direction of the Canadian economy. "It's a movie."

Presumably what our chief central banker meant was that, with constant twists and turns in the plot, there is no way for even the smartest forecasters to describe the Canadian economy in a single snapshot.

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The question left for those of us listening to the governor's cinematic, and sometimes contradictory, review of the country's economic future was, "What kind of movie is it?"

Gloomy as Bergman

In some ways the bank's outlook on the economy was as gloomy as a foreign film by Ingmar Bergman. You know the kind, with long shots of barren landscapes and lonely people staring out windows.

"Projected global economic growth has once again been taken down a notch," said Poloz during one of the more depressing moments of his presentation. To a Bergman aficionado — as the cultured Poloz no doubt is — such misfortunes are only to be expected.

"The world has disappointed us multiple times," he said wearily. "And the global economy retains the capacity to disappoint further."

America's decline

The problem isn't just the Far East and South America, it's our closest neighbour too. Perhaps the Canadian economic movie is Denis Arcand's classic The Decline of the American Empire, since Poloz worried aloud that even the U.S. powerhouse economy was failing to meet his previous expectations.

"We are forecasting a slightly slower growth rate because of the downgrade in the U.S.," he said. "That's not just U.S. growth but it comes from a reassessment of housing which is an important export destination for us."

Until recently the bank had been anticipating that Canadian manufacturers — of things like wood and doors and window frames — would have gone from using up existing capacity to creating new plants and jobs to serve a renewed housing boom.

Beware the woods

But unfortunately, like one of those horror movies where a group of good-looking young people heads off to a cabin only to be murdered horribly, Poloz said we are not yet out of the woods.

There are "contrary winds" howling through the forest of Canadian growth and "there are many downside risks."

But then, as Poloz says, the risks are balanced, and other threats — such as the kind of overheating that might lead to inflation — aren't going to offer scenes that will have you hiding under your blanket. Those scenes of the movie just aren't so horrible.

"The positive risks don't look very scary," said Poloz.

Or could the genre be a romance between the Bank of Canada and the Ministry of Finance? 

Some of the reporters attending the briefing asked if the bank and ministry were maybe a bit too close, because Poloz and his team used the federal government's own optimistic estimates of how much federal fiscal spending would boost the economy.

Bromance?

Poloz said the bank has its own views on the multiplier effect of fiscal spending. It's just that they are closely aligned with those of the government. Bit of a bromance perhaps, but no hanky panky here, he said.

In fact, according to the bank, the new round of fiscal spending seemed to be the one thing most likely to turn the Canadian economy into a blockbuster. Poloz seemed unwilling to accept the rave reviews of the economy offered from other recent statistics, including stunning growth figures from January and last month's bumper crop of jobs.

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In fact maybe the Canadian economy is a Hollywood mash-up where a Western like The Good, The Bad and the Ugly meets Mary Poppins.

Despite a rebound in oil prices, the Bank of Canada thinks investment in the western oil business will continue to shrink as energy companies cut investment even further. The happy musical portion of the movie will only start once the non-resource economic picks up enough to overwhelm that decline.

Poloz obviously sees it with a filmmaker's eye: "Given what we've been through, we have to think of the policy risk through a different lens."

Happy ending

While the rising loonie takes some of the advantage away from exporters that they had a few months ago, Poloz was quick to remind us that even at these levels the crashing energy economy means the shock absorber effect of a low Canadian dollar provides a 20 to 25 per cent advantage for exporters compared to when the loonie was at its peak.

All that means there is still no reason to alter Canada's low, low overnight interest rate of 0.5 per cent, and that slowly but surely — likely by mid- to late 2017 — we can expect the economy to creep back into normal robust health. But be patient.

"It's a very slow movie," Poloz said. "It's one of those very long movies and the director keeps giving us surprises along the way."

But ultimately, he said, he's expecting a happy ending: "Based on what we've got in front of us, the movie ends well."

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