Bank of Canada Governor Tiff Macklem is warning that the nation’s economy could shrink again amid a second wave of COVID-19 virus cases.
In his last speech of the year, Macklem said that uncertainty remains elevated and new restrictions could trigger an economic contraction at the start of 2021.
"The economic recovery from the pandemic is at a very difficult stage," Macklem told the Vancouver Board of Trade via video conference. "Near term, rising COVID-19 infections will dampen growth and could even deepen our economic hole."
Speaking to reporters after his remarks, Macklem said data suggests only a marginal increase in output in the final months of 2020, followed by a modest negative or small positive in the first three months of 2021.
Overall, Macklem’s comments reflect a central bank that is in a holding pattern on interest rates, waiting for economic developments for cues on its next move.
Canada’s currency rose to the highest in more than two years in the hour after Macklem’s speech before paring gains slightly during the press conference. It was trading 0.5% higher at $1.2704 against the U.S. dollar. The yield on 10-year government bonds rose one basis point to 0.73%.
Macklem’s remarks were focused on the need to strengthen exports, and less on the current economic outlook. He reiterated borrowing costs will remain low for a long time, and listed tools that would be available to the central bank should they need to take additional measures.
Officials at the Bank of Canada have pledged not to raise their 0.25% overnight interest rate until economic slack in the economy is fully absorbed.
