A robust services sector will continue to underpin Canada’s shaky economy, Bank of Canada (BOC) Governor Stephen Poloz said Thursday evening.
While monetary policy is helping the economy recover, it is the expansion of service activity that will play an increasingly pivotal role in the coming years.
“I strongly believe that the continued expansion of our service sector is pointing the way toward full economic recovery and the return of sustained, natural growth.” Poloz said in prepared remarks at the C.D. Howe Institute Thursday evening.
The BOC Governor highlighted the strength of information technology, one of Canada’s fastest growing economic sectors. “This is the kind of creation that follows the destruction,” Poloz said.
Technology-intensive industries have emerged as the stalwarts of growth for advanced industrialized nations with a diminishing manufacturing base. Canada’s IT sector accounts for roughly 5% of gross domestic product, but its impact is much more profound as a cross-cutting user industry influencing everything from natural resources to professional services.
Despite its strong export base, Canada is primarily driven by services output. According to Statistics Canada, the nation’s service-producing industry accounts for around 70% of GDP.
Since cutting interest rates twice in 2015, the Bank of Canada has remained on the sidelines of monetary policy. Poloz indicated last month the BOC was close to easing monetary policy further in October, but decided against it because the “balance of risks” was tilted toward uncertainty.
The Canadian economy contracted in the second quarter as Alberta wildfires knocked out tens of millions of barrels of crude production. Although the economy is forecast to rebound sharply in the third quarter, the underlying trend remains weak. The International Monetary Fund’s October Outlook report predicted the Canadian economy to expand just 1.2% in 2016. By comparison, advanced economies as a whole are forecast to expand 1.6%.
The IMF expands Canada’s economy to grow 1.9% in 2017, higher than the average for similar economies.