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Bank of Canada senior deputy governor Carolyn Wilkins holds a press conference in Ottawa on Oct. 28, 2020.The Canadian Press

Canada needs productivity-boosting investments if it wants to undo the severe economic damage from the COVID-19 crisis and pay for government debt taken on during the pandemic, Bank of Canada senior deputy governor Carolyn Wilkins said.

In her final public address as the central bank’s No. 2 official, Ms. Wilkins stressed that the pandemic has left scars on the Canadian and global economies that will hinder the potential for growth once the pandemic has passed.

“It’s not too early for an open discussion about life after COVID-19,” Ms. Wilkins told a video-conference at the University of Toronto’s Munk School of Global Affairs and Public Policy. “We need to set our sights higher to help businesses create good jobs and to make high debt loads more manageable.”

The Bank of Canada recently cut its estimates for annual growth in potential output – the amount the economy can produce when operating at full capacity – to about 1 per cent a year from 2020 through 2023, down from pre-COVID estimates of about 1.8 per cent.

It also cut its global potential-output growth estimate for the next several years to about 2.5 per cent from 3.25 per cent, and its U.S. estimate to 1.25 per cent from nearly 2 per cent – an indication of expected weakness in Canada’s key export markets.

Ms. Wilkins said that roughly three-quarters of the damage to Canada’s potential growth stems from sharp declines in capital investment. The crisis has forced many companies to shutter their businesses and may force more to do so before it is over, while other companies are cautious about major investment decisions, with uncertainty reigning over the prospects for demand to return.

She said other factors in the decline relate to “scarring” in the labour force and to drags on productivity growth, as labour and capital struggle to adjust to deep disruptions across regions and sectors as a result of the pandemic.

“Many of those scars could become permanent without deliberate actions from all of us,” she said.

Ms. Wilkins called on both the public and private sectors to invest in productivity-improving measures – such as infrastructure, education and retraining, innovation and green technology – to help lift the country out of what otherwise threatens to become a low-growth rut.

“You may ask how we can improve our productivity performance during a crisis – but there may be no better time,” she said, adding that investments after the Second World War were instrumental in propelling an era of strong productivity growth and economic prosperity.

“While analogies between the COVID-19 pandemic and wars are imperfect, both events force governments and businesses to adapt at speeds they previously thought impossible,” Ms. Wilkins said.

“Strong, sustainable growth would also help us to manage the heavy debt load that has piled up over the last decade and will continue to pile up because of COVID,” Ms. Wilkins said, by improving the government’s capacity to keep its revenues growing comfortably faster than its debt-service costs.

The Bank of Canada announced last week that Ms. Wilkins, 56, will leave the bank on Dec. 9, five months before her seven-year term ends. She had previously indicated that she wouldn’t seek a second term in the job. Ms. Wilkins had been widely expected to succeed Stephen Poloz as governor of the central bank when his term expired earlier this year, but she was passed over in favour of Tiff Macklem.

Michael Sabia, director of the Munk School, took the opportunity to thank Ms. Wilkins for her work as the bank’s senior deputy governor.

“She has been a steady and important hand at a turbulent time in terms of economic policy. I think she has made a huge and lasting contribution to economic policy in Canada,” Mr. Sabia said.

In response to an audience question following her speech, Ms. Wilkins acknowledged that the near-term global economic outlook has become clouded since the Bank of Canada published its most recent growth projections in late October, as surging COVID-19 case numbers have forced many regions in Canada and elsewhere to re-impose containment measures.

“It’s hard not to be worried ... there are a lot of downside risks to the global outlook,” she said. “That really does come from the pandemic, and the need for more lockdowns, and more widespread lockdowns, than we had assumed.”

At the same time, though, she noted that the recent encouraging test results from drug maker Pfizer on its COVID-19 vaccine present the possibility that the virus could be contained earlier than previously forecast.

“That does provide a bit of upside. I wouldn’t want to overstate that,” she said.

Editor’s note: (Nov. 16, 2020): An earlier version of this article described Bank of Canada senior deputy governor Carolyn Wilkins as 'the de facto chief operating officer' of the central bank. In fact, the bank created a separate COO position in 2014.

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