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While Bank of Canada's governor Tif McLim insists on an end to the monetary policy response to the tariff warfare, he has a clear vision of the damage that he can cause to the Canadian economy.
“Increasing commercial friction with the United States is a new fact,” he said in a speech in the Toronto region on Friday. Although the timing, degree and duration of definitions is inconceivable, the ruler said it seems inevitable that “structural change is on us.”
Macklem put a serial reaction if the United States is imposing a 10 % tariff on energy products and 25 % of fees on everything else the country buys from Canada, which will also respond with retaliatory measures on certain products.
Maclim said that the US tariff war in the United States will flood the Canadian product by 3 % over two years and “wipe out growth” during that period. While the economy may expand again after the initial shock, the long -term growth path will be 2.5 % less than the scenario in which it was not a tariff.
Although the Canadian goods imposed more expensive in the United States become, the demand for these products will be found. The bank believes that exports decline by 8.5 % in the year that followed the confidentiality of definitions, and exporters cut production and workers' situation.
“You will be shocked all over Canada,” he said, because exports to the United States represent about a quarter of national income.
Low export revenue will reduce family income, and the reprisal definitions will temporarily increase consumer prices higher than a 2 % goal, both of which would deter consumer spending. The bank expects a decrease in consumption by more than 2 % by mid -2017.
The low value of the Canadian dollar will increase the prices of imported goods and services, and integrated supply chains between the two countries can add costs in multiple stages of production.
With the export and demand for the consumer, companies reduce their spending on investment. Higher costs and lower profit margins will suppress these expenses more. The bank expects the investment to decrease by 12 % by 2026.
McLim repeated that the bank is now “in a better position to contribute to economic stability” with inflation now in the goal, and warned against an end to the response of monetary policy.
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