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Scotiabank CEO sees ‘unsettling’ disconnect between markets, economy

Shareholders and employees watch Scotiabank CEO Brian Porter speak on a screen during the company's annual general meeting in Ottawa on Thursday, April 9, 2015.


Brian Porter, chief executive officer at Bank of Nova Scotia, offered an optimistic view of the economy, arguing in a speech that there is a "disconnect" between turbulent financial markets and the actual performance of the economy.

But he cautioned that the federal government must step up with a significant investment in infrastructure to create much-needed jobs, tapping into concerns expressed elsewhere that monetary stimulus from central banks is no longer enough to bolster economic activity.

"We support the Trudeau government's commitment to make sizable investments in infrastructure," Mr. Porter said in remarks delivered to the Canadian Club of Toronto on Friday.

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"And, during this time of slower economic growth, we would encourage the government to boost the amount and timing of these investments," he said, pointing specifically to the proposed Energy East pipeline and more broadly to projects that can move people, ideas and resources.

His comments follow an unsettling period of market volatility, raising questions about the health of the global economy.

The benchmark Canadian stock index has fallen more than 20 per cent from its recent high, or a decline known as a bear market.

At the same time, oil prices have slumped below $30 (U.S.) a barrel, the Canadian dollar has plummeted to a decade-low of about 72 cents against the U.S. dollar and slim bond yields are reflecting deep concern about economic activity as investors seek safety in government bonds.

"Business leaders and consumers see all of this, which is then amplified through the media, with dire warnings and premature talk of recession," Mr. Porter said.

"This only fuels a negative cycle."

However, Mr. Porter said the troubling financial-market indicators are at odds with modest economic growth and upbeat views among businesses, creating what he believes is the widest discrepancy between markets and real activity since the 1980s.

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"This disconnect is unsettling, and threatens business and consumer confidence," he said.

Mr. Porter said that in meetings with the bank's commercial customers, which have operations around the world, they tell him that their businesses are performing well.

"They're investing in their businesses and in new technology. They're hiring new employees," he said. "And on average, they're feeling optimistic about the future."

He also believes that Canada's economy is adjusting to the lower dollar and depressed commodity prices and is becoming more diversified.

Markets appeared to back him up on Friday. The S&P/TSX composite index and oil surged, following a rise in U.S. retail sales in January and news of a possible oil-production cut by the Organization of Petroleum Exporting Countries, suggesting that markets may have become too dour in their outlook.

Mr. Porter said the Canadian government has been making the right decisions to help boost domestic economic activity – for example, by signing the Trans-Pacific Partnership agreement.

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"The agreement will link Canadian goods, services and investments to more than 800 million consumers," Mr. Porter said.

"It will also help to solidify Canada's advantageous position within the NAFTA supply chain," he added.

But more can be done.

He argued that a strong trading network won't mean as much if Canadian businesses lack the proper infrastructure to take advantage of it, and pipelines rank as a high priority even when oil prices are depressed.

He cited a study from the Conference Board of Canada that concluded the proposed Energy East pipeline, connecting oil production in Western Canada to a refinery in New Brunswick, will create tens of thousands of jobs and inject tens of billions of dollars into the economy.

"And it would also help to address Canada's startling lack of energy infrastructure in an environmentally responsible way," Mr. Porter said.

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