With the bank’s primary rate unchanged at 1.25 percent, both Canadians and Bank of Canada Governor Stephen Poloz said the period of low interest rates has likely been in place for the past five years. “It’s not sustainable over the long-term.”
In a speech at Toronto’s University of Toronto Mississauga, Poloz said the economy’s largest challenge is an aging population, known as a “shrinking labor force.” Canada’s population is aging, meaning fewer people have jobs, as individuals are born later, retire earlier and continue to live longer.
Poloz said unemployment is generally higher in an aging society, and more people are choosing to be independent and work alone or with a partner — a phenomenon known as “single adulthood.”
One of the most pressing issues with this population shift, he said, is the skills gap. As fewer people are working, the economy has fewer workers to pick up the slack, which results in businesses having difficulty finding qualified candidates.
And though there’s usually a gap of around one to two years in an economy between when employers need more workers and when workers are needed, Poloz pointed out that the gap has been much longer in Canada. This, he said, is also partly due to an aging population that is impacting the transition to automation and technology that is driving the current cycle of slow productivity growth.
“In the late 1990s, around the peak of the boom, the unemployment rate for persons aged 55 years and older averaged about 7 percent,” Poloz said. “Today, it’s just about 4 percent.”
Morrison, meanwhile, credited the economy’s rapid expansion to recently placed stimulative policies, such as a lower federal corporate tax rate and the country’s robust housing market, which has made employment more attractive to businesses.
But an increase in rates is unlikely to be entirely consistent with higher interest rates from the Bank of Canada.
While Poloz warned that it is “highly probable” that interest rates will be going up in the future, he said the timing will largely depend on the strength of the economy.
“I’m on record as saying that the time to normalize monetary policy has come,” Poloz said. “While the Bank of Canada has not determined the exact timing for that normalization, we are in a position where a normalization will be appropriate.”