Economic analysis

The Bank of Canada Carolyn Wilkins: 'Uncertainty lingers'

Bank of Canada deputy warns of lingering uncertainty around non-resource exports

Carolyn Wilkins. (Photograph by Erin Schaff)

Carolyn Wilkins. (Photograph by Erin Schaff)

OTTAWA — The Bank of Canada’s senior deputy governor says there’s still uncertainty around the long-hoped-for rebound of the country’s crucial non-resource export sectors.

In prepared remarks of a Quebec speech she was to deliver Thursday, Carolyn Wilkins said the future of these exports is not entirely predictable despite some encouraging numbers in July and August.

“Uncertainty lingers,” Wilkins said in an address she was to deliver at the Universite du Quebec a Trois-Rivieres.

“This uncertainty comes in part from the future growth of U.S. investment. It is also possible that the effect of lower oil prices on the U.S. economy is less positive than anticipated.”

The Bank of Canada has been waiting for the country’s non-commodity exports to rebound ever since the collapse of oil prices and the dollar’s slide a couple of years ago. Many are banking on the sector’s eventual pickup to help lift the stubbornly sluggish economy.

Related: Carolyn Wilkins on central banking in a slow-growth world

Wilkins noted that while the central bank has seen “a clear upward trend” in non-commodity exports over the last six years, the weaker dollar’s influence on their growth rate has mostly faded.

She recalled Thursday how Canada’s non-resource exports underperformed in the second quarter of 2016, which was partly due to a period of weaker-than-anticipated growth and investment for the country’s most-important trading partner: the U.S.

Canada, she added, also continues to face stiff competition from other countries like Mexico, where she noted the currency fell further than the loonie.

“So, it will take time to fully determine what is temporary and what is permanent for exports,” Wilkins said.

She did, however, say that Canada has seen improvements in its services sector, which accounts for about 70 per cent of the country’s economy and 80 per cent of its jobs. Wilkins said that some high-value-added sectors have “grown quite nicely,” including cultural and air transportation industries.

Canada exports about $100 billion worth of services, or about one dollar out of every six from total exports, she said.

Going forward, Wilkins said she expects several factors to help feed stronger growth in Canada, including the federal government’s commitment to spend an additional $25 billion over two years on infrastructure projects and to increase child-benefit payments for families.

“The effects of this stimulus will become more prominent as the year progresses,” she said.

She also touched on the bank’s financial stability concerns, including the high debt levels of Canadian households and sizzling housing markets.

Wilkins said she thought Ottawa’s rule changes announced this week, which seek to slightly limit borrowing and to cool housing markets, will help mitigate some of these risks