Investing.com – Bank of Canada (BoC) governor Stephen Poloz said on Tuesday that the global economy was still facing severe headwinds which supported the use of low interest rates, but saw no signs of an impending recession.
In a speech on global trade, productivity and economic growth given in New York, the BoC chief explained that “ultra-low” interest rates were not causing rapid growth and inflation because many of the negative forces from the global financial crisis “are still acting now”.
“There is no shortage of fundamental issues to worry about: another downgrade to the outlook for global growth, uncertainty about the economic transition in China, the pace of normalization in the United States, worries about Europe, worries about Japan, just to cite a few,” Poloz said.
But he defended the use of low interest rates by explaining a sudden return to 3% or 4% would trigger a recession.
“This is just another way of saying that severe headwinds are still acting on our economies, years after the crisis, and low interest rates are keeping them at bay,” Poloz insisted.
But the BoC head was optimistic, stating that “most of the cyclical part of the slowdown in trade should be reversed as the global economy recovers, even if that is a slow process”.
Poloz expressed his belief that the global economy could continue to recover, although he noted it was a slow process.
Though global trade growth remained lower than its pre-crisis levels, Poloz asserted that it was not warning of an impending recession.
“Rather, I see it as a sign that trade has reached a new balance point in the global economy—and one that we have the ability to nudge forward,” he concluded.