Bank of Canada (BoC) Gov. Tiff Macklem on Wednesday warned Canadians to brace for impact, citing in-house research that points to a collapse in Canadians’ confidence in the economy.
A tariff war was entirely to blame, Macklem told reporters as the BoC further reduced its key interest rate on interbank loans from 3% to 2.75%, according to Blacklock’s Reporter.
“The hard data so far still looks good,” said Macklem.
“You can’t see much damage from the trade war in the hard data yet. But when you look at the survey data, it is pretty clear consumer confidence, business confidence, has been sharply affected and we are expecting to see pullback in household spending and business investment. That is going to have an impact on the economy.”
“What do you anticipate that is going to do to Canada’s unemployment rate?” asked a reporter.
“I don’t have a forecast,” replied Macklem.
“Is a recession imminent?” asked a reporter.
“It is going to depend a lot on what the United States does,” replied Macklem.
“Canadians are more worried about job security and financial health as a result of the trade tensions. They intend to spend more cautiously. Job security concerns increased particularly among workers in export-oriented industries.”
“Businesses have lowered sales outlooks notably in manufacturing and in sectors that depend on discretionary spending by households. Credit has become more difficult to access for some businesses. With a weaker Canadian dollar, the cost of imported machinery and equipment has risen.”
There is “weakness ahead,” said Macklem. He advised Canadians to anticipate the worst.
“The economic impact could be severe,” said Macklem.
“The uncertainty alone is already causing harm. Monetary policy cannot offset the impacts of a trade war.”
“We are going to get weaker economic activity, we are going to get higher prices, higher inflation. We can’t change that.”
“Tariffs are going to weaken the Canadian economy. They are going to weaken U.S. demand for our exports.”
Results from in-house surveys were unmistakable, he said.
“Certainly what we are hearing from businesses is that is having an impact on their investment plans,” said Macklem.
“They are scaling back their hiring intentions. That is going to spill into the domestic economy. It could well mean layoffs. Certainly what we are hearing from Canadians is they are becoming more worried about their job security.”
“The bank will proceed carefully,” said Macklem.
The next rate announcement is due April 16.
