Stephen Poloz has a problem.
Yes, the economy is growing again after contracting in the first half. And that relieves some of the pressure on the Bank of Canada Governor to cut rates again.
But the central bank is struggling to pinpoint just how fast the economy should be growing.
It's a concept known as potential output growth – essentially, the maximum speed an economy can go before inflation flares up. It's often referred to as the economy's speed limit. The pace depends on the supply of available workers and capital, and how productively they can be put to use.
Figuring out the economy's cruising speed is proving to be a hard task these days. Canada is caught in a slow-growth trap, brought on by a deep resource price slump and a rapidly aging work force.
Accurately measuring the gap between actual growth and potential growth is vitally important for an inflation-targeting central bank, such as the Bank of Canada. When the gap widens, interest rate relief may be needed; when the gap narrows, rate hikes come into play.
The Bank of Canada acknowledged this week that it's struggling to measure potential output as the economy awkwardly pivots from resources to other sources of growth.
Resource companies, particularly in the oil patch, are continuing to lay off workers and scrap investment plans. Investment in the energy sector will drop 40 per cent this year and 20 per cent in 2016, the bank said in its quarterly monetary policy report.
Elsewhere, export-oriented companies, including manufacturers, are benefiting from the cheaper Canadian dollar, but, so far, they're being very stingy about committing to new investments and adding capacity.
"In the current environment, declines in investment in the resource sector are occurring faster than increases in investment in other sectors," the central bank said.
There is also a troubling unknown. How much output has vanished forever? Across Canada, there are newsprint mills, auto parts makers and food processing plants that were shut down during the Great Recession. Many may never reopen.
The same pattern could play out in the oil patch going forward. Tougher emissions regulations and carbon pricing could strand some of Canada's higher-cost energy reserves. If that happens, billions of dollars' worth of planned oil sands projects might never be built, along with the pipelines needed to move all that crude.
Temporary capacity destruction could become permanent, putting a break on the economy's ability to grow in the future.
For now, the Bank of Canada says potential output growth is "more likely to be in the lower part of the range of estimates" – or as little as 1.3 to 1.4 per cent a year. That's well below the pace of expansion in the years before the financial crisis.
Over the next few months, bank officials will be working to recalibrate the economy's optimal speed limit. They will almost certainly find that growth is much slower than in previous decades.
It's not just about the resource slump. The Canadian economy is also fighting powerful demographic forces.
It could be years before potential growth rates in most advanced economies regain the levels they were at before the financial crisis, according to a recent International Monetary Fund report. The IMF blames the aging of the population, which limits the growth of the labour force, as well as sluggish capital growth due to the lingering effects of the crisis.
"Demographic factors are likely to act as a break on growth … as populations age and workers retire," the IMF said.
Potential growth among wealthy countries will average 1.6 per cent between 2015 and 2020, down from 2.25 per cent between 2001 and 2007, according to the IMF.
One way out of this slow-growth trap is to boost productivity – to get more out of available labour and capital. That means Ottawa and the provinces must work much harder to encourage innovation, promote productive investments and counter the aging of the work force, either by boosting immigration or getting people to stay in the work force much longer.
Absent successful productivity-enhancing policies, "countries will have to adjust to a new reality of lower speed limits," the IMF warned.
Add slow growth to the list of uncomfortable realities facing the incoming Liberal government in Ottawa.