Canada needs to be “obsessed with economic growth” to boost prosperity and combat pressure from high inflation and rising interest rates, says Victor Dodig, chief executive officer of Canadian Imperial Bank of Commerce CM-T.
In remarks to shareholders at the bank’s annual meeting, which was held online on Thursday, Mr. Dodig added to a chorus of senior business leaders who have urged the federal government to sharpen its focus on policies that can drive economic expansion and get the country’s fiscal house in order.
In an interview ahead of Thursday’s meeting, Mr. Dodig said that as Canada emerges from two years of crisis response to the COVID-19 pandemic, generating “durable, long-term, sustainable economic growth that is inclusive, where people feel like they’re all benefiting from a rising tide, is policy No. 1.”
Speaking to shareholders, he said Canadians “need to be realistic” about the economic challenges ahead. With inflation surging, interest rates will rise, pushing up the cost of servicing the national debt, which is now more than $1-trillion. To cover those rising costs, the government needs to generate revenue, and like many of his fellow leaders in corporate Canada, Mr. Dodig sees a growing economy as the best solution.
One key indicator that Mr. Dodig watches closely is how much of every dollar of federal government revenue goes to interest payments. “It’s kind of hovering in the 8-cents zone now,” he told The Globe and Mail, which is well below historical highs. But if long-term interest rates were to spike from 1.75 per cent to 5 per cent, as an example, “that 8 cents goes to 20 cents pretty quickly.”
CIBC’s shareholder meeting took place hours before Finance Minister and Deputy Prime Minister Chrystia Freeland released the federal budget. An agreement the Liberal government struck with the opposition New Democratic Party to secure three years of political support has commitments to programs such as dental care and pharmacare that add up to as much as $20-billion in new spending over three years, in addition to billions of dollars expected to be earmarked for affordable housing and defence.
With inflation and rate hikes looming, Mr. Dodig said a measure of fiscal discipline is necessary so that government revenue can keep pace with its obligations.
“We just need to make sure that we have our powder dry and that our investments, both from the public purse and from the private sector are utilized not all at once, so that we have that flexibility if inflation does run and interest rates do run,” he said in the interview.
Mr. Dodig also highlighted a number of encouraging signs for Canada’s economy, which has grown consistently of late. The country is benefiting from strong immigration, has natural resources “that are coming into vogue again,” and is developing “pockets of innovation,” he said. And though inflation is a top concern, he said he is confident that major central banks, including the Bank of Canada, are “going to work hard to tame that.”
“But I always say one should never take anything for granted, because in the end, Canada is competing for people, Canada’s competing for capital, and Canada’s trying to deliver a growth story that will attract both of them,” he said.
On Thursday, Mr. Dodig told The Globe that if the country loses that race to attract capital and encourage private investment, it could be a lasting setback. “Because some of those investments are so long-term that it’s hard to repivot them to our country if they go elsewhere.”
Huge investments will be essential to develop a number of key parts of Canada’s economy where Mr. Dodig thinks the country must be more resilient and innovative. Those include producing cleaner energy, new technologies, a more secure food supply, a greater supply of affordable housing and more. To get there, he said, Canada needs to act as urgently as it did early in the pandemic to create a long-term plan.
“Look, I think everyone’s intent is positive,” Mr. Dodig said. “We do have to get really good answers on the how.”
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