Economic recovery threatened if some workers, households left behind, Macklem says


An economic rebound that leaves behind parts of the Canadian labour force in the short term could end up jeopardizing the recovery from COVID-19 in the long run, Canada’s top central banker says.

Bank of Canada governor Tiff Macklem said the pandemic has widened divides in the country that could worsen further without the right response.

The longer people hit by the pandemic are out of work, he said, the harder it will be for them to find new jobs and the more likely they are to give up looking for work.

The combined effects on workers and businesses could weigh down the economy, harming even those who are doing comparatively well.

It’s why Macklem has been talking recently about inequality — and why he thinks the central bank should be making the argument.

“Our mandate is to support the economic and financial well-being of Canadians. It doesn’t say some Canadians, it’s all Canadians,” he said over a recent video conference from his office.

“What we see right now, as a result of this pandemic, are growing divides.”

People line up at a Service Canada office in Montreal in March. The Bank of Canada said this week that it’s expecting to take until 2022 for the economy to reach pre-pandemic levels, but the impact of closed businesses and unemployed workers could take longer to heal. (Paul Chiasson/The Canadian Press)

Some workers, sectors still lagging

Low-wage workers are still about 20 per cent below their pre-pandemic levels of employment, Macklem noted, whereas other workers with higher incomes have recouped job losses from the spring.

“High-touch” sectors like restaurants and accommodations are lagging behind as restrictions limit customers and consumers stay home.

The way back isn’t a sprint but a long slog, Macklem told The Canadian Press hours after the bank said it’s expecting to take until 2022 for the economy to get back to pre-pandemic levels, with some scarring from closed businesses and unemployed workers taking even longer to heal.

“It’s not going to be possible to fully recover the economy until we have a vaccine, but we want to try to reduce the negative effects,” he said.

“Once there is a vaccine, we want to make sure we get back to our full potential.”

Second-in-command during last economic crisis

Macklem took over the central bank’s top job in June. He had been the bank’s second-in-command during the last economic crisis a decade ago.

One of the bank’s key functions is to keep inflation at a moderate level, which it does by controlling a key interest rate. The lower the interest rate, the more appealing it is to borrow, invest and spend.

Macklem inherited a key policy rate slashed to 0.25 per cent, which he has said is as low as it will go and where it will stay, likely until 2023, to keep interest rates low so households feel comfortable spending.

He has overseen the bank’s foray into “quantitative easing,” which is a way for central banks to pump money into the economy, and mass buying of federal debt to effectively lower borrowing costs for the government.

I don’t want to pretend that there aren’t some difficult decisions to take.– Bank of Canada governor Tiff Macklem

It has put him in a political hot seat, with Conservatives on Parliament Hill warning the bank about appearing too cosy with the governing Liberals and wanting Canadians to take on debt to finance a recovery.

Macklem said the bank’s actions are independent of whatever the government might want and have to do with its mandate of keeping inflation at two per cent a year. Inflation is close to zero because of the pandemic.

“We have a lot of unemployed Canadians. That’s putting downward pressure on inflation. So we need to put a lot of monetary stimulus into the system to achieve our objective,” he said.

“I don’t want to pretend that there aren’t some difficult decisions to take, but our objective is clear.”

Much uncertainty facing Canadian households

Near, the end of the interview, Macklem took a breath to think over a question that he repeats out loud: “How am I coping?”

He spoke slowly about getting fresh air, eating right and getting enough sleep. He said he misses talking to colleagues in person, and there’s worry the bank could lose some creativity in its thinking without people in the same room, sharing thoughts and ideas.

“We’ve got to guard against that,” Macklem said.

He pivoted to the uncertainty facing Canadian households: parents whose children might be at school one day, home another, or others with elderly parents who need help getting essentials from the store.

Every Canadian is dealing with extraordinary demands, he said, and no one knows how this pandemic is going to play out. That leads to anxiety.

“I gained a lot of experience particularly in the ’08-’09 financial crisis. This crisis is very different. But you know, that feeling you get in the pit of your stomach is not that different,” Macklem said.

“Some of the lessons from that crisis and also some of the things that we did that were not as effective, I think, are very valuable in dealing with this pandemic.”



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