China tops Stephen Poloz's list of global concerns that could put a dent in Canada's economic recovery.
The world's biggest resource importer is wrestling with widening economic imbalances and stresses in its financial system that could stall Chinese growth. Any interruption in Chinese expansion lasting a year or two would drive oil and other commodity prices even lower, the Bank of Canada Governor told an audience of businesspeople, politicians and diplomats at a dinner Tuesday evening celebrating the 10th anniversary of the Toronto Global Forum.
Mr. Poloz also took on critics who carp about the failure of central bank moves to stimulate growth in the wake of the financial collapse and global recession of 2008-09.
"Look at what it prevented," he said of the co-ordinated response of major central banks at the height of the crisis – namely another Great Depression.
He acknowledged that the Canadian recovery has been slow, noting that numerous factors are holding back growth, including continuing uncertainty about future prospects, which dampens spending. "So we have to be a lot more patient."
Any new pressures on the economy would be "magnified" by continuing high levels of household debt, Mr. Poloz said.
With the world standing "somewhere between a Great Depression and a recovery," he likened monetary policy since the crisis to "pedalling a bike up a hill … for all you're worth."
For those who think central bankers are doing nothing, "just stop pedalling and see what happens."
In a separate speech on Wednesday, the senior deputy governor of the Bank of Canada says investors and those in the financial system need to adapt to the reality of slower growth and associated low interest rates.
In a speech to the Official Monetary and Financial Institutions Forum in London, Carolyn Wilkins said Wednesday that means changing investment strategies and risk-management practices to reflect lower rates of return.
"For households, this may mean saving more before retirement or planning for a lower post-retirement income," Ms. Wilkins said in a prepared text of her speech.
"It also means acknowledging a reduced capacity to grow out of existing debts. The faster we do this, the safer the financial system will be."
Ms. Wilkins said countries must also continue to work to take steps that will improve long-term growth.
"Authorities have to continue to solidify the global financial system and guard against emerging problems," she added.
Ms. Wilkins said economists estimate the interest rate needed to balance savings and investment when the economy is operating at potential has fallen in Canada to 1.25 per cent, from 3 per cent in the early 2000s.
She noted that while the Bank of Canada's key interest rate target is set at 0.5 per cent, it is less stimulative than it would have been a decade ago at that level when the so-called neutral rate was higher.
"At the same time, as population aging continues, the neutral rate could fall further, unless productivity growth picks up or global savings fall," Ms. Wilkins said.
"And the longer weak investment persists, the more important this risk becomes."
With files from the Canadian Press