Basically, Mr Poloz, thinks the Canadian economy is primed to move forward, it needs a catalyst, to move forward. In economic terms, the term is "animal spirits". Animal spirits is the term John Maynard Keynes used in his 1936 book The General Theory of Employment, Interest and Money to describe the instincts, proclivities and emotions that ostensibly influence and guide human behavior, and which can be measured in terms of, for example, consumer confidence. It has since been argued that trust is also included in or produced by "animal spirits".
That catalyst is likely to be Canadian businesses increasing their confidence in the US economy, increasing hiring and buying new equipment to service the massive US marketplace.
OTTAWA — Stephen Poloz is confident the Canadian economy will soon return to “natural growth,” and on Wednesday, he set out the course — in his colourful manner, including a reference to a boat on spaghetti sauce — that the country needs to follow to get there.
“I anticipate that the Canadian economy will normalize and growth will become natural, in contrast to the economic activity of the past six years, which has been fuelled by policy, including record-low interest rates,” the Bank of Canada governor said in the text of a speech being delivered in Vancouver.
“Natural growth will be self-generating and self-sustaining, and the economy will be growing at its potential, as its productive capacity expands,” Mr. Poloz told the Vancouver Board of Trade.
“New ideas, new products and new ways of producing them are often the seeds of new companies,” he said. “New companies create new jobs, which create new incomes, which get spent creating a virtuous circle of self-sustaining growth. That’s what makes it natural.”
Improved trade and investment with the U.S. is most critical for Canadian business operators, who have been cautiously looking south of the border and waiting for things to pick up and stay up before spending additional money on new equipment and additional staff.
That’s a situation that Mr. Poloz has addressed in the past and he did so again on Wednesday.
“Understandably, Canadian firms have been reluctant to add new capacity until the U.S. economic recovery gains traction and is more certain,” he said in his Vancouver speech.
“However, once there is a shift in sentiment, research shows that business decision-makers tend to react and move forward very quickly with their investment plans. Economists call this ‘animal spirits’ because it is very hard to predict.
“Evidence suggest we are now close to the tipping point from improving confidence into expanding capacity.”
The newly minted Bank of Canada governor has quickly gained a reputation for using colourful descriptions for often boring and complicated economic trends.
And Wednesday was no exception.
“… It’s important to make the distinction between policy tightening and a slowing of the rate at which additional stimulus is being provided,” he said.
“So, a seven-year bubble, a seven-year crater. Central banks have been filling that crater with liquidity, so we can row our boats across it. We need to make sure we’re getting to shore and not just hitting a rock.”
Mr. Poloz spent more than a dozen years at the Bank of Canada before going into the private sector. Most recently he was the president of Export Development Canada, the Ottawa-based arms-length government credit agency for business investment.
Mr. Poloz now has two speeches under his belt since taking over from Mark Carney in June.
He is scheduled to hold a news conference at 12:20 pm ET in Vancouver, the second time he has faced reporters’ questions during a tenure that has been marked by cautious public steps as he attempts to set his own monetary tone.
But in just over three months, the governor has treaded softly as Canada struggles to find a firm economic footing after an impressive initial rebound from the 2008-09 recession. The country’s efforts to regain traction have been compromised by events outside Canada — mostly in the European Union and the United States, our two biggest trading partners, where signs of sustainable growth are only now beginning to take root.
Mr. Poloz’s Vancouver address will inevitably be overshadowed later on Wednesday by events taking place in that same economic elephant to the south.
U.S. Federal Reserve chairman Ben Bernanke is expected to announce the globally anticipated tapering of the central bank’s $85-billion-a-month bond-buying policy, referred to as quantitative easing.
The Fed’s benchmark interest rate is near zero and Mr. Bernanke has pledge to keep it there until the U.S. jobless rate — now at 7.3% — drops to 6.5%, a though he may announce Wednesday that he is cutting that target to 6%.
Signs of an improving U.S. economy have pointed to a reduction in QE anywhere from $10-billion to $15-billion.
In Canadian, policymakers have kept their key lending rate at 1% since September 2010. Most economists don’t expect that to change before late 2014.
Mr. Poloz “has continued an interest in speaking on big days for Federal Reserve policy decisions that his predecessor started,” said one analyst.
“One might assume it’s a scheduling fluke . . . but it naturally invites a discussion on the limits of central bank independence.”
Financial Post - Gordon Isfeld | 18/09/13