Among the many things complicating Mark Carney's life are a fat current account deficit and a strong dollar that could stay his hand on interest rates.
Mr. Carney and his rate-setting panel at the Bank of Canada flagged both those issues yesterday when they held their benchmark rate at 1%. They also cited poor productivity gains among Canadian businesses, Europe's debt troubles, and the tentative nature of the global recovery.
They did upgrade their outlook for Canadian growth, and said the global rebound was picking up speed. But one of the things that caught the eye of economists was the fact that the central bank mentioned, for the first time in recent memory, the current account deficit, which swelled in the third quarter of last year to $17.5 billion.
That was the eighth quarterly deficit since late 2008.
The current account is the broadest measure of trade. As experts have pointed out, a deficit in the flow of trade and foreign investment can provide an early warning of a country taking on too much debt, while a surplus can show it doing little to stimulate domestic demand.
The Canadian dollar, while slipping yesterday on the Bank of Canada's comments, has been hovering over parity with its U.S. counterpart, and economists suggest further gains in the currency could prompt the central bank to hold off on raising interest rates. While rates are expected to remain unchanged for some time yet, the timing of the next rate hike has been a source of speculation.
As for productivity, the Bank of Canada has "put it on its list" of threats to the economy, added Sal Guatieri, Mr. Reitzes' colleague at BMO.
Lagging productivity has been an issue that has dogged Canada for some time.
Over the past year, Canadian factories have actually outperformed those in the United States by driving labour costs down at a faster pace, Mr. Guatieri said, but he compared that to "the woeful underperformance" of the previous nine years.
Senior economist Pascal Gauthier of Toronto-Dominion Bank added that Mr. Carney and his colleagues appear "to have gone to lengths not to sound hawkish" in an attempt to spark another surge in the dollar.
