Canadian economy can handle swings in resource prices: Bank of CanadaClick image to enlarge

The Canadian economy can handle challenges posed by the swings in resource prices, says Stephen S. Poloz, the Bank of Canada Governor.

Poloz made his comments at a speech at the Calgary Economic Development 2016 Economic Outlook event on September 21.

He says it's far better for Canada to have natural resources than not, even if swings in their prices can complicate the management of companies and economic policy.

"Even when prices are falling, as they have been recently, our endowment represents a store of value and a source of future riches."

The fundamental forces of supply and demand, along with constant technological progress, drive long-term cycles in resource prices, says Poloz. "Why did oil prices fall so much? The main reason is that supply rose sharply, thanks primarily to technological advances in oil extraction everywhere."

Lower oil prices do not mean that recent investments, which may last for decades, were a mistake, the Governor stated. "Without those investments, we would never have been able to capitalize on those higher prices, which boosted Canada's aggregate income."

Still, swings in prices signal that economic adjustments are needed. They also require businesses and policy-makers to be flexible in the face of volatile resource prices and an uncertain future. "Canada has seen this movie before," he says. "We've managed it well in the past, and I'm confident we will continue to manage it well in the future."

These adjustments are often difficult and painful for the people affected and their families, adds Poloz, noting that the Bank of Canada's policy framework of flexible inflation targeting with a floating currency helps smooth the process.

"We've adjusted to rising prices; we can adjust to falling ones. Over the years, Canadians have used our endowment to build a prosperous economy. We will continue to do so."

Source: CNW Group

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