OTTAWA – Canada’s top central banker says an economic recovery that leaves parts of the Canadian workforce short-term could hurt long-term recovery from COVID-19.
Bank of Canada Governor Tiffany Maclem said the pandemic had widened divisions in a country that was deteriorating further without a proper response.
He said people affected by the epidemic were not at work for long, it was difficult for them to find new jobs and they were looking for work.
The combined effects on workers and businesses weigh on the economy and harm even those who are doing relatively well.
Why McClellan has been talking about inequality lately, and why he thinks the central bank should make the argument.
“Our mandate is to support the economic and financial well-being of Canadians. This is not to say that some Canadians are all Canadians,” he said in a video conference from his office.
“The result of this epidemic is dividing what we see right now.”
Low-wage workers are 20 percent lower than their pre-epidemic levels, McClellan notes, while other high-income workers have recovered job losses since the spring.
“High-touch” sectors such as restaurants and facilities are lagging behind because restrictions limit customers and keep customers at home.
The way back is not a sprint, a long motto, McClellan told the Canadian Press, adding that it would take until 2022 for the economy to return to the pandemic level, with some scars from closed businesses and unemployed workers still taking longer to heal.
“It is not possible to fully recover the economy until we get the vaccine, but we want to try to minimize the negative effects,” he said.
“Once the vaccine arrives, we need to make sure it returns to its full potential.”
McClellan took over the top job at the Central Bank in June. He was the bank’s second leader during the last financial crisis a decade ago.
Keeping inflation in moderation is one of the main functions of a bank, which does so by controlling the key interest rate. The lower the interest rate, the more attractive it is to borrow, invest and spend.
McClellan has inherited a key policy rate cut to 0.25 per cent, which he says is low enough to keep interest rates low until 2023, so that homes can spend comfortably.
He oversaw the bank’s exploitation of “quantitative easing” as a way for central banks to send money into the economy, and to buy federal debt heavily to effectively reduce the cost of borrowing for the government.
This put him in a political hot seat as Conservatives in Parliament Hill warned the bank about appearing too comfortable with liberals and for Canadians to borrow to finance recovery.
McClellan said the bank’s actions were more independent than the government wanted, with an order to keep inflation at two per cent a year. Inflation is close to zero due to the epidemic.
“We have a lot of unemployed Canadians who are putting downward pressure on inflation. So we have to put a lot of monetary stimulus in the system to achieve our goal,” he said.
“I do not want to pretend that there are not some difficult decisions to make, but our goal is clear.”
At the end of the interview, Maclem takes a deep breath to think about a question that is repeated out loud: “How do I cope?”
He talks slowly about getting fresh air, eating properly and getting enough sleep. He says he misses talking to colleagues in person, and worries that the bank will lose some creativity in his thinking without having people in the same room and sharing ideas and thoughts.
“We’re protected from it,” he said.
He leads to the uncertainty that Canadian homes face: parents may one day be at school, may be at another home, or with elderly parents who need help getting things they need from the store.
Every Canadian is dealing with extraordinary demands, and no one knows how this epidemic will unfold. That leads to anxiety.
“I ‘ve had a lot of experience, especially in the ’08 -’09 financial crisis. This crisis is very different. But you know, the feeling you get in your stomach is not so different,” he said.
“Some of the lessons from that crisis and even some of the things we did were not so effective. I think they are very valuable in combating this epidemic.”
This report of the Canadian Press was first published on October 31, 2020.