Bank of Canada Governor Tiff Macklem has warned that Canada’s economy and financial system is now more vulnerable to future economic shocks.
Speaking by video conference to a financial risk management group, Macklem said that bold policy actions taken in response to the coronavirus pandemic will make Canada’s economy and financial system more vulnerable to economic shocks down the road.
Canada came into the pandemic with a number of vulnerabilities and that it "seems certain" the country would exit with higher levels of government debt, added Macklem. The central bank governor also reiterated that a full recovery from the COVID-19 crisis would take a long time and noted that many risks remain, particularly as a second wave of infections takes hold.
Macklem also said that the Bank of Canada was keeping a close eye on household debt levels and Canada’s housing market, both of which were vulnerabilities coming into the pandemic.
As bank mortgage deferral programs have expired, most people have returned to regular payments, he said. Macklem said the central bank is watching Canada’s financial system to assess the risk that credit losses could become large enough that banks would need to tighten credit conditions.
"If this happens, our banking system would go from being a tailwind that supports recovery to being a headwind." Macklem said.
