Former Governor of the Bank of Canada David Dodge is pictured during an interview in Ottawa in this file photo.Sean Kilpatrick/The Globe and Mail
Canada's former central banker, David Dodge, has a message for investors: low growth is the new normal.
"We are not in a recession. This is a lower growth world," Mr. Dodge said at a panel discussion in Toronto Thursday evening.
Canada's economy is forecast to expand just 1.7 per cent this year and grew a meagre 1.2 per cent in 2015 after dipping into a mild recession in the first half of the year.
The new Liberal federal government as well as Canada's central bank have taken actions to help bolster the nation's economy.
Ottawa has promised to double spending on infrastructure over the next decade. And the Bank of Canada cut interest rates twice last year, and floated the idea of slashing rates below zero.
"It's not a hopeless world," said Mr. Dodge, who is now in private practice at law firm Bennett Jones. "It's just that we got used to a world that was spectacular. But that's not normal."
For years, Canada benefited from China's booming economy and its insatiable demand for resources like iron ore, metallurgical coal, nickel and copper.
Now that China's economy has slowed – forecast to grow about 6 per cent this year compared with more than 10 per cent during the boom years – demand for resources has shrunk, driving down prices and flooding markets with commodities.
Adding to those woes, the surplus of oil in the world has driven down the price of crude 70 per cent over the past year and a half, devastating the oil rich provinces of Alberta and Newfoundland and Labrador.
But with Canada's benchmark interest rate sitting at rock bottom lows of 0.5 per cent, fiscal policy is being eyed to help the country's economy instead of monetary policy.
Mr. Dodge suggested that was a positive move after the U.S. relied heavily on the Federal Reserve to save the big American banks and prevent the financial system from collapsing.
"We basically said 'OK central bank it's up to you to keep things going," said Mr. Dodge, who was still Canada's central bank governor during the early stages of the U.S. housing meltdown. "I hope that we are past that period," he said.
Mr. Dodge was speaking at panel sponsored by Sprott Asset Management.
Rachelle Younglai