FX.co ★ Bank of Canada: Canada needs investment, not stimulus

On Wednesday, Bank of Canada's Governor Tiff Macklem said that the Canadian economy does not need additional stimulus, but rather more investment from government and business to build supply capacity to meet the country's strong consumer demand.

Tiff Macklem also added that Canada is already in the midst of a consumer-driven recovery and more investment is needed to support it.

During his campaign last year, Canadian Prime Minister Justin Trudeau promised to allocate 78 billion Canadian dollars ($62 billion) over five years for new spending to contribute to Canada's economic recovery.

Macklem said that with inflation above the central bank's 2% target, productivity growth is more important than ever. In his words, businesses can help increase productivity by investing in new technologies.

If Canadian businesses fail to make the planned investments, it could affect the path of rate hikes, he later told reporters.

Despite a stronger employment record than the US, productivity growth in Canada continues to lag. According to Macklem, this is due to both increased restrictions of society, and less investment in the business.

According to Macklem, corporate balance sheets are strong, consumer demand is high, and US demand for Canadian exports is growing, while investment intentions of companies are at the highest level since 1999.

Last month, the central bank signaled that it would start raising rates soon, saying the economy no longer needed support. The initial rate hike is likely to take place in March and only six increases per year are planned.