By Julie Gordon and David Ljunggren
OTTAWA (Reuters) – Canadian firms must follow through with business investment plans, building on shifts made in the COVID-19 pandemic, or risk losing out to competitors south of the border, Bank of Canada Governor Tiff Macklem said on Wednesday.
Corporate balance sheets are strong, consumer demand is high and U.S. demand for Canadian exports is rising, with investment intentions among firms at their highest level since 1999, Macklem told a business audience.
“It’s imperative that businesses in Canada follow through on these plans or risk losing out to U.S. competitors,” he said. “For the economy as a whole, investment is critical to non-inflationary growth.”
The Canadian dollar was trading 0.3% higher at 1.2675 to the greenback, or 78.90 U.S. cents.
Macklem reiterated interest rates must rise to combat “too high” inflation. The central bank signaled last month it would soon start hiking rates, saying the economy no longer needed pandemic-level supports.
Despite a stronger rebound in employment than seen in the United States, Canada’s productivity growth continues to lag. This is both due to more public health restrictions and lower business investment, said Macklem.
“The question is, does COVID-19 provide us with an opportunity to change our course? I believe it does,” said Macklem, pointing to the pandemic-driven rise in digital investments and remote work.
The central bank sees business investment growing faster in Canada through 2023 than in the United States. That should lead to long overdue productivity gains.
“In our forecast, productivity growth in Canada closes in but remains below U.S. productivity growth,” Macklem said.
Businesses can help by investing in new technology that makes their operations and workers more productive, said Macklem. That would also help with labor shortages in many industries.
The Bank of Canada is expected to hike its overnight interest rate to 0.50% in March, from a current record low 0.25%, with money markets betting on six increases in total this year. [BOCWATCH]
(Reporting by Julie Gordon in Ottawa; Editing by Alex Richardson)
