The Bank of Canada says overcoming the economic suffering inflicted by the commodity-price shock essentially boils down to one main option: ride it out.
Bank of Canada Governor Stephen Poloz.
In a speech Thursday at Ottawa City Hall, central bank governor Stephen Poloz said no simple policy response will fix the problem, although some measures can buffer the negative effects of factors such as the steep slide in oil prices.
"The forces that have been set in motion simply must work themselves out," Mr. Poloz said at the Mayor's Breakfast, a presentation of OBJ and the Ottawa Chamber of Commerce.
"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."
Under Mr. Poloz's leadership, the central bank lowered its trend-setting interest rate twice in the last 12 months to help cushion the blow of the oil slump.
CLICK HERE FOR PERISCOPE VIDEO OF POLOZ (available until Jan. 8).
He noted that Canada's the dollar has tumbled along to roughly the same levels they stood at over a decade ago.
"It is not a coincidence that the Canadian dollar is about where it was back in 2003 and 2004 – oil prices are also about where they were back then," said Mr. Poloz, who also listed some of the benefits of a lower loonie.
At the time of the speech, the loonie was trading below 71 cents US, about where it was in mid-2003 as the currency when it was recovering from a historic low of 61.79 cents US set in January 2002.
A benchmark oil price ducked under US$34 a barrel on Wednesday, the lowest level since 2008, but was even lower on Thursday. Mr. Poloz noted that oil prices were around US$25 per barrel in 2002.
Almost like it was 2002 all over again, Mr. Poloz said the complex economic changes have led to higher consumer spending, falling employment and lower investment in the resources sector. Non-resources sectors, meanwhile, have seen rising employment and investment, Mr. Poloz added.
The central bank's governor also said a potential increase in municipal infrastructure spending could help boost the economy.
“Economists think of it as a good thing almost all the time because infrastructure is an ingredient to economic growth,” he said.
That struck a chord with Ottawa Mayor Jim Watson.
“(It) really hit a home run from the municipal perspective,” Mr. Watson said after the speech. “(Mr. Poloz) recognizes that in order to get us out of this economic slowdown, infrastructure is the quickest way to get people back to work.”
Prime Minister Justin Trudeau has promised $125 billion in infrastructure spending over the next decade. He is meeting with new Infrastructure Minister Amarjeet Sohi next week for a tour of the light rail transit construction work at Tremblay Road.
The Bank of Canada will release a more detailed economic forecast in the coming weeks.
– With files from Lucy Scholey of Metro