(September 14 – 15:40 ET) – Gordon Thiessen, governor of the Bank of Canada, offered what could be perceived as a concession speech on the economy today. Thiessen addressed his comments to the Calgary Chamber of Commerce.

Thiessen admitted that the bank may have been wrong earlier this year when it was sounding the alarm over the economy outstripping its capacity. He noted that inflation has remained restrained in the face of a booming economy, reiterating that core inflation is the key statistic for the bank.

Core inflation remains lower than the bank thought, around the midpoint of its target operating band. “It suggests that total demand, although stronger than anticipated, may not have been putting as much pressure on our economy’s production capacity as we had thought at the beginning of the year.”

In recent weeks rumblings out of Ottawa suggested that the bank’ hawkish view was clashing with a more optimistic Finance department. This morning Finance minister Paul Martin delivered a remorselessly upbeat speech in Toronto.

Thiessen remains cautious, if a little less hawkish. “Prospects for the period ahead are generally very favourable. But, as is often the case, there are also uncertainties that the bank will have to deal with as it pursues its objective of keeping the economy on a sustainable, non-inflationary track.” The bank’s latest projection for economic growth in 2000 is 4.25% to 4.75%, with core inflation moving up to 2% by early next year.

Thiessen said the U.S. economy seems to be slowing, but the bank is still worried about the economy’s capacity limit. He admitted that there is a good deal of uncertainty surrounding both trends. “It is possible that the investment boom we have witnessed in Canada since 1996 will increase productivity growth and capacity more quickly than we are allowing for. There is a good deal of anecdotal evidence that some of the American experience is being replicated in Canada. Until recently, there had been little evidence of this in our official, economy-wide productivity statistics.”

Thiessen concluded by reiterating his position that the economy looks good, but the bank remains vigilant.
-IE Staff