The Institute of International Finance and the Canadian Bankers Association hosted a forum on economic growth amid uncertainty, featuring a speech that addressed various global challenges. The speaker acknowledged the current state of uncertainty due to geopolitical tensions, technological disruptions, climate change impacts, political instability, and fiscal unpredictability.
"Uncertainty feels like the new reality: The uncertainty caused by war in Europe and in the Middle East. The uncertainties arising from geopolitical tensions and economic fragmentation," said the speaker. They also highlighted the role of rapid technological advances, particularly artificial intelligence (AI) and Generative-AI, in creating new uncertainties for businesses and workers.
The speaker emphasized that despite these challenges, effective policy-making, sound business decisions, and robust risk management can mitigate uncertainty's impact on households, businesses, and overall economic growth. Historical evidence was cited to support this claim. "Sixteen years ago this month, Lehman Brothers failed... Today, the global financial system is much safer thanks to sweeping global reforms."
Recent developments were discussed as well. "With the rapid development of new vaccines...uncertainty about our health...has decreased dramatically since the depths of the COVID-19 pandemic." Additionally, decisive monetary policy actions have reduced inflation-related uncertainties significantly over recent years.
The address also touched upon two key areas where good policy could reduce uncertainty: global trade dynamics and AI advancements. It was noted that financial institutions play a crucial role in helping manage risks faced by households and businesses while prudently managing their own risks to avoid becoming sources of instability.
As Canada's central bank has mandates beyond price stability—including fostering a stable financial system—the speaker elaborated on its responsibilities related to payments amidst increasing digitalization. Starting November 1st this year, over 3,000 retail payment service providers will need to register with the Bank under new rules aimed at safeguarding consumers.
On monetary policy matters, it was mentioned that recent interest rate cuts were driven by easing inflation rates. "In June we began lowering our policy interest rate...for a cumulative decline of 75 basis points to 4.25%." Future rate adjustments will depend on incoming data regarding inflation trends.
Economic indicators suggest growth may not be as strong as expected; hence consumer spending along with business hiring and investment will be closely monitored going forward. The next decision on monetary policy is scheduled for October 23rd when an updated economic outlook will be provided.
The session concluded with gratitude expressed towards Russell Barnett Claudia Godbout Brian Peterson for their assistance in preparing these remarks.
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