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Poloz says it will take time to measure effects of fiscal expansion

`Years from now we’ll be analysing this episode,’ Bank of Canada governor tells MPs


 
Stephen Poloz on the Hill in April 2015 (Justin Tang/CP).

Stephen Poloz on the Hill in April 2015 (Justin Tang/CP).

OTTAWA — The Bank of Canada governor says it could take years of sifting through data before economists will know the actual impact of today’s federal spending measures aimed at boosting the weak economy.

Stephen Poloz made the comments Monday during testimony before the House of Commons finance committee.

He was asked by opposition MPs about the government’s multibillion-dollar spending plan to lift the economy, including its enhanced child-benefit program and infrastructure investments.

The Finance Department and the Bank of Canada have agreed that the government’s commitments will boost growth by about 0.5 percentage points this year and by a full percentage point by the end of next year.

“Unfortunately, there’s no category in the (Statistics Canada) publication that’s going to tell us — this (result) came from fiscal expansion,” Poloz said.

“Years from now we’ll be analysing this episode and the economists will figure out how much actually came (from fiscal spending), but that’s very common.”

The governor’s assessment comes a week before the government releases its fall update, which will include fresh projections for the economy and Ottawa’s bottom line.

In the March budget, the Liberal government predicted a $29.4-billion deficit for 2016-17.

Poloz also said signs of improvement from the government measures have yet to show up in the economic numbers, but he noted it’s still a “little early.”

The Liberals’ child-benefit cheques started arriving in Canadians’ mailboxes in July, while experts say the benefits from infrastructure investments will likely take considerable time to trickle through the system.

The most-recent data for retail sales — July and August — have been disappointing since the child-benefit transfers started to roll out.

Poloz said the monthly figures are always choppy and that it’s difficult to draw conclusions from one or two data points. The August decline, he added, was largely due to a drop in auto sales.

On government infrastructure investments, Poloz said it’s difficult to know exactly how much they will benefit the economy. He noted that United States data has shown infrastructure spending on roads and bridges delivered economic benefits three times higher than the initial investment over an eight-year period.

The governor was also asked how much deeper the government can go into deficit.

“No one, including me, thinks that this is without limit,” said Poloz, who was also asked if he was concerned about the level of government spending.

“At this time, no. At this time, our fiscal situation is among the best in the world and so I think for the time being the government has considerable flexibility on that front.”

Last week, the Bank of Canada downgraded its projections for the economy and Poloz said the governing council actively discussed cutting the trendsetting interest rate from its already-low level of 0.5 per cent as a way to help the economy.

On Monday, he said any call to move the benchmark rate lower would bring the bank closer to using “unconventional” monetary policy tools. Unconventional tools include negative interest rates.

“So that’s, of course, not a decision we would take lightly,” he said.


 

Poloz says it will take time to measure effects of fiscal expansion

  1. Japan has been running massive fiscal deficits to spend on infrastructure for two decades. It hasn’t helped or worked.

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