Bank of Canada says confidence in economy improving

The Canadian economy, thanks to more business confidence and stronger foreign demand, is close to a "tipping point" that will usher in an era of more normal growth, Bank of Canada governor Stephen Poloz said Wednesday. 

Poloz also said this growth could likely be accommodated without risk of a boost to inflation. 

“Evidence suggests we are now close to the tipping point from improving confidence into expanding capacity,” Poloz told members of the Vancouver Board of Trade. “Stronger investment means more new jobs will be created."

The central bank governor cited data that showed there are now 40,000 more firms in Canada with at least one employee than there were last year at this time. 

"This pace is considerably stronger than we would expect in normal, non-recessionary times and suggests that we may be replacing some of the firms that were lost in the recession with new ones," he said. "This is excellent news."

'Growth will become natural'

Also encouraging, he said, were recent private surveys that pointed to signs of a more positive business outlook.

Poloz said the central bank is seeing foreign demand for Canadian goods picking up. He said Canada's export market will benefit from solid increases in U.S. business and residential investment, with the lagging machinery, equipment and wood products sectors enjoying some of the biggest benefits.

"I anticipate that the Canadian economy will normalize and growth will become natural, in contrast to the economic activity of the past six years, which has been fuelled by policy, including record-low interest rates," Poloz said.

"Natural growth will be self-generating and self-sustaining, and the economy will be growing at its potential, as its productive capacity expands."

Statistics Canada reported in late August that growth in the second quarter slowed to an annualized rate of 1.7 per cent.  

The Bank of Canada has maintained its one per cent overnight interest rate for three years. While it has indicated that its key rate will rise at some point in the future, most economists think that point is at least a year away.