Bank of Canada Governor Stephen Poloz's prediction of an unusually plodding recovery is rooted in what he calls a "hot-and-not" economy.
Resource-rich provinces and sectors are booming, while much of the rest of the country is still in the throes of a "post-crisis repair job," Mr. Poloz said Thursday after a speech to a business audience in Saskatoon.
That means that interest rates will stay low for longer, while inflation will remain below the central bank's 2-per-cent target for at least another two years, he forecast.
Citing continuing economic weakness, the central bank held its key overnight interest rate at 1 per cent last week, marking the 29th successive no-decision from the bank, stretching back to September, 2010.
Most economists expect the bank's next move to be a rate hike – probably in the second half of next year.
But Mr. Poloz told reporters the bank is sticking to "true neutrality."
In his speech, Mr. Poloz said the resource price boom of the past decade has been more of a gift than a curse for Canada. But he acknowledged that the benefits have been spread unevenly across the country.
"While different regions and sectors adjust differently, and while these adjustments can be painful, they allow us to maximize the benefits of our rich energy endowment, and ultimately everyone gets the gift," he told members of the Saskatchewan Trade and Export Partnership.
Mr. Poloz said the growing gap between the value of resource exports and import prices since 2002 means gross domestic income – a measure of the purchasing power of Canadians – is 7-per-cent higher than it would have been.
Obviously the rewards are greater in Alberta, Saskatchewan and Newfoundland, where wages have grown more rapidly. But "everywhere in Canada" is benefiting, he insisted.
The price of oil over the past decade is twice what it was in the three previous decades, triggering a boom in oil sands production.
Some critics have blamed the oil boom for sending the Canadian dollar soaring in the 2000s, devastating the country's manufacturing sector – a phenomenon often referred to as Dutch disease. The Canadian dollar has since fallen roughly 10 cents (U.S.) in the past year to 90.7 cents.
The central bank also released a background paper Thursday that suggests the export pickup will affect non-energy exporters unevenly as the U.S. economy rebounds. Makers of machinery, building materials, aircraft, pharmaceuticals, plastics and metal products stand to gain from the lower Canadian dollar and stronger U.S. growth. Tourism will also pick up.
Several other sectors will continue to struggle, including auto makers, food and beverage suppliers, and chemical manufacturers.
The report found that Canada's share of the U.S. market for non-energy products has shrunk by six percentage points since 2000 to 11.4 per cent in 2013. The report is more evidence that Canadian exporters have been losing competitive ground to to other countries in the all-important U.S. market.
That partly explains why the bank failed to predict the slow recovery of manufactured exports since the recession of 2008-09.
But Mr. Poloz said the central bank now expects "a gradual convergence" between Canadian exports and growing demand in the U.S. and elsewhere. But he said more restructuring still lies ahead for the economy.
"We can't rely on forecasts in an environment where so many things have changed," Mr. Poloz told reporters.
But he insisted that the "ingredients" are now in place for exports to pick up – a forecast the bank has been making for more than a year.
"We're comfortable on the sequence, but the timing has been difficult," he conceded.