During the years following the 2008 global recession, former Bank of Canada Governor Mark Carney was lauded by Canadian and international economists as a rock star among his peers. Carney effectively steered Canada’s monetary policy through the worst of the recession as well as the aftermath, and was praised by most leading experts for performing such an admirable job.
But Avery Shenfeld, a chief economist with CIBC, disagrees that Carney’s policies were in the best interests of the Canadian economy. Shenfeld says Carney’s primary focus was on the domestic housing market, and dictated policy that ramped up home prices while also causing the value of the loonie to skyrocket.
Shenfeld argues that the high dollar has hurt the Canadian manufacturing and export sectors, leaving the economy weaker than it otherwise would be.
“Rather than intervene to neutralize the impact of hot money capital flows on the exchange rate, the Bank of Canada tried to offset the impact by keeping interest rates low enough to stimulate housing and domestic consumption.”
With interest rates frozen near record lows, Canadians were able to qualify for affordable mortgages and prop up the housing market. This policy effectively helped Canada avoid the housing crash that plagued the US, which was the catalyst to kick start the global recession.
However, Shenfeld says Carney refused to intervene in the rising stock of the loonie. A high dollar is a hindrance for Canada’s exports, with fewer countries willing to buy as many products at such a high exchange rate.
According to CIBC data, as many as 9,000 Canadian exporting firms have closed their doors since the recession, with many more manufacturing companies reducing their total production. He argues that Carney’s successor, Stephen Poloz should commit to policy that keeps the loonie trading around 90 cents US to prevent more losses for the manufacturing sector.
“Given how infrequently production location decisions come up, the legacy of earlier plant closures will be with us for years to come.”
CIBC agrees with the Bank of Canada that the Canadian economy will grow this year, but disagrees on the exact amount that things will improve.