Stephen Poloz explains what Justin Trudeau is up against

Ottawa is buoyed by a frantic energy. But the Bank of Canada governor warns that there’s no easy policy fix for the economy—it needs to work itself out

Stephen S. Poloz, Governor of the Bank of Canada delivers a speech at Ottawa City Hall Council Chambers, in Ottawa, on Thursday, January 7, 2016. (Fred Chartrand/CP)

Stephen S. Poloz, Governor of the Bank of Canada delivers a speech at Ottawa City Hall Council Chambers, in Ottawa, on Thursday, January 7, 2016. (Fred Chartrand/CP)

There are a lot of moving parts in an economy like Canada’s, but often it’s helpful to narrow the focus, especially when you’re trying to sort out possible political responses to economic problems. Bank of Canada governor Stephen Poloz helped out today by neatly quantifying the pain Canadians are feeling as a result of the plummet in the price of oil and other natural resources.

In a breakfast speech in Ottawa, Poloz first reminded the business crowd of the blissfully long stretch, lasting from 2001 to about mid-2014, when strong commodity prices lifted the Canadian economy. “Since then, however, falling world prices for oil and other commodities have reversed much of that rise,” he said. “Measured at annual rates, this represents a loss of more than $50 billion in national income, or about $1,500 for every Canadian.”

We all know what $1,500 is, but how much is $50 billion? Well, 10 times more, for instance, than the infrastructure boost that the Liberals pledged in their winning fall election campaign. Justin Trudeau’s platform promised a doubling of federal infrastructure spending to $10 billion from $5 billion in each of the next two fiscal years. (Asked how much the infrastructure injection might stimulate the economy, Poloz declined today to discuss the potential impact.)

The comparison brings home how hard it will be for any government action to ease the wrenching adjustment the Canadian economy is now going through. Of course, that pain isn’t evenly distributed. Poloz noted that since the fall of 2014, the unemployment rate is up more than two percentage points in Alberta, Saskatchewan, and Newfoundland and Labrador, the three main oil producing provinces, but flat in the rest of the country.

Related: Why Newfoundland is the Rock in a hard place

Don’t imagine that a merely regional slump in energy and mining is anywhere close to being equalled yet by a bounce in other parts of the country. Poloz said that’s coming, as the decline in the value of the petro-linked loonie makes Canadian manufactured exports cheaper, but he was careful not to predict exactly when those watched-for positives would outweigh the all-too-present negatives.

The transition won’t be quick, though. “The tension between sectors and between regions will remain a feature for some time, measured in years,” he said, adding: “It typically takes three or five years to adjust to a significant movement in your terms of trade, which is what we’re going through.”

So Finance Minister Bill Morneau must deliver the Trudeau government’s first budget next month, or perhaps the month after, in what’s still the early phase of a tough adjustment, which might last through the Liberals’ entire first mandate. Making middle-income Canadians feel that the government is delivering the promised new era of buoyant incomes and better expectations in this climate will be a huge challenge.

One possible reaction to all this is might be to bemoan the misguided over-emphasis on oil of the Stephen Harper era. Trudeau has in the past identified that as a basic economic-strategy blunder. In a speech around this time a year ago, he asked rhetorically: “So, first question: Why would the Harper Conservatives bet so much of Canada’s future on oil prices staying high? Because they didn’t—they never do.”

Poloz agreed today that the fall of oil and other resource prices has followed “an oft-repeated, textbook cycle.” Still, when asked by a reporter after his speech what lesson Canada should draw from this painful, familiar experience, he didn’t profess to have any hard-earned wisdom to impart.

“Some have talked about, ‘Did we become excessively enthusiastic or excessively exposed to energy?’ I usually resist that argument, because the market was telling us people were willing to pay up to $100 a barrel for oil,” he said. “It would have been quite unusual behaviour to say, ‘No, I’m not going to take advantage of that by investing more in the oil patch.’ ”

Related: The death of the Alberta dream

Parliament Hill is crackling with expectation these days. The mood generated by Trudeau is all about doing stuff. But transferring that sense of bustling activism to the wider economy will be far harder than, say, launching an inquiry, scheduling a meeting with the provinces, or starting a policy consultation process.

In fact, Poloz went so far as to declare that there is nothing much to be done, except wait for the economy to pivot toward higher investment and employment in the non-resource sectors. “There is no simple policy response in this situation,” he said flatly. “The forces that have been set in motion simply must work themselves out. The economy’s adjustment process can be difficult and painful for individuals, and there are policies that can help buffer those effects, but the adjustments must eventually happen.”

It’s odd to hear anybody in Ottawa talking that way these days.


Stephen Poloz explains what Justin Trudeau is up against

  1. Now the media is repeating the Trudeau lie that Harper bet the Canadian economy on oil?

    What about bailing out the auto industry and the banks during the global financial crisis? What about building the new Windsor bridge to Detroit? What about all the free trade deals? What about the increased infrastructure spending (though not as much as the deficit spenders would like)? What about the corporate tax cuts. What about the navy ship building programs? What about the tax deal with Blackberry that advanced them hundreds of millions of dollars applicable to tax losses they would be able to claim that basically save the company?

    • Yeah, what about all those secret trade deals, like the China deal locking us in for 31 years with a one-sided secret ISDS clause; telling the President of the U.S. that he “won’t take no for an answer”; announcing government programs and policy not to the House but to groups of US businessmen in places like NYC; selling the GM shares at a substantial loss while trying to “balance” the books by robbing every piggy bank available including the contingency fund; the massive commitment to Irvine Shipyards (guess whose riding it’s in) to rejig their facility on the taxpayer’s dime so we can buy ships from them at a fat profit; oh and the “increased infrastructure spending” that like most of Harper’s programs consisted of promises but the cheques somehow didn’t get signed so the money didn’t get spent but then was wrapped up in new promises for the next round of PR? You know, the “Economic Inaction Plan?” What about all that? Go ahead, write the essay about your hero, I’m sure we will all want to read it. Please provide detail, with chapters about proroguing Parliament, abuse of omnibus bills, filling the Senate with yes-men to ram his policies through and closure on debate everywhere he could so nobody got to challenge anything he did. There must be a whole bunch of new immigrants who desperately want to meet him too. Tell us all about him. Such a nice man. Goes to church so he must be okay. Completely trustworthy. Perfect. Defender of the nation, first to protect the innocent in time of crisis. Knows a good closet when he sees one. Shows his love of this country by cutting social programs. Yeah, what about all those corporate tax cuts? Tell us all about it.

      • Oh thats right, only Harper had omnibus bills, look it up been going on for decades. Yes man in the senate yes going on forever. GM shares worked out pretty well look it up, we were the last government body to sell. Lower GST, pension income splitting, last year we had the richest middle class in the world, again look it up. Best recovery post 2008 recession (look it up), and now we have your beloved selfie PM and we have the lowest dollar since 2002 and a country in ruin, oh but yes lots of new refugees (i mean economic migrants) milking us dry for now and many forever. Great all we need is more people living here who add nothing. Oh and there are 20 million so called refugees world wide, should we bring them all in?

  2. I didn’t think that much of Mr. Poloz after Mark Carney’s excellent stewardship, but now I am inclined to believe that my opinion was an unfortunate byproduct of the muzzling by the previous PM. Mr. Poloz has shown his worth, and I’m glad of it. It’s been a long time since the truth has been laid bare upon the table, and that’s what we need to see in order to effectively strategize a way forward. Nice to see the spin cycle is done. Good article!

    • Your impressed by the fact the guy says nothing can be done? Then why even have a Govenor of the bank of canada. SHeesh?

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