3) A Cutting-Edge Central Bank
Though it typically fails to capture the world’s attention, Canada’s central bank has been an innovator in monetary policy since the early 1990s.
The Bank of Canada was among the first in the world to adopt a formal inflation target, and has generally enjoyed success in achieving this goal.
During the financial crisis, then-Governor Mark Carney also pioneered the use of calendar-based forward guidance in April 2009 by stating that the policy rate would remain at 0.25 percent through the second quarter of 2010, which helped depress yields across the curve.
The Bank has also been at the forefront of how central banks are attempting to condition markets for policy normalization. In October 2014, Governor Stephen Poloz published a discussion paper revealing that the Bank would be abandoning forward guidance after a period of moving towards increasingly vague descriptions of the economic variables that would influence monetary policymakers. These moves have served as a template of sorts for later communication shifts by the Federal Reserve and the Bank of England.
Known for his folksy, off-the-cuff style, Poloz has managed to inject volatility not only into foreign exchange and fixed income markets, but also into Canadian socioeconomic debates when he suggested that unemployed youths should seek unpaid work.
The Bank of Canada shocked markets by cutting its policy rate to 0.75 percent on January 21, and this won’t be the last time the institution is front-and-center in monetary policy circles.
In preparation for the renewal of its inflation-control agreement in 2016, the Bank will be investigating, among other matters, whether a 2 percent inflation is still the most appropriate target and how much monetary policymakers should take financial stability concerns into their decision-making process.
Though both Governor Stephen Poloz and Deputy Governor Agathe Côté have stressed that the “bar for change is high,” the Bank is poised to inform an important debate: how monetary policy should be altered in light of the financial crisis and the increased odds of revisiting the zero lower bound for interest rates once the next global economic shock hits.
And in the event that an upward adjustment to its inflation target grows more likely, the resolve of owners of Canadian sovereign debt would be put to the test.
4) The Struggles Of A Would-Be Natural Resources Superpower
The path to North American energy independence runs through a pipeline that begins in Alberta.
However, progress along that path has met many roadblocks, as balancing the interests of citizens, governments (federal, provincial, and foreign) and corporations, is a prerequisite for resource development.
Because of a failure to adequately address the concerns of all these parties, access to markets has been a persistent challenge, resulting in a deficiency of transport infrastructure.
The collapse in oil prices is the latest challenge that threatens to dampen Canada’s quest to become a global energy superpower.
Peter Tertzakian, chief energy economist at Calgary-based ARC Financial Corp., highlighted 24 oil “megaprojects” have been delayed or cancelled as of mid-2014 -- 18 of these in Canada.
Amid the boom times for oil, investors have pushed companies to invest in smaller developments with more visible returns on investment and shorter payback periods.
If the demand for oil sufficiently outstrips supply over the medium term -- the opposite of the current situation -- as global growth picks up steam, the lack of Canadian megaprojects will be a key contributor to that deficit.
As such, the stories of resource market dynamics of today and tomorrow will have an essential Canadian component -- and that’s not just for oil.
Water shortages, already a severe problem in California (a state with a population roughly equivalent to Canada’s), will become more acute as time passes.
Canada, which possesses about 20 percent of the world’s freshwater resources, will be well-positioned to alleviate some global shortfalls in supply.