Construction of new pipelines would boost the Canadian economy, but not enough to overcome an expected long-term drop in oil prices, Bank of Canada governor Stephen Poloz says.
U.S. President Donald Trump signed a presidential memorandum last week inviting TransCanada Corp. to reapply for permission to build the Keystone XL pipeline, while the federal government approved the Trans Mountain and Line 3 replacement projects in December.
Those developments will provide jobs, lower transportation costs and possibly higher export capacity if they go ahead, and should reduce the price gap between Canadian crude and benchmark West Texas Intermediate, Poloz said Tuesday in Edmonton.
But they aren’t a panacea for an industry that has seen oil prices drop from more than $100 US a barrel, he said.
“Adding new pipelines will be positive, but at the margins relative to that big picture,” he said during a Postmedia interview.
“The big picture is we have to adjust to a lower price, possibly for a really long time … If the price gets up to $60 (US), I can imagine lots of new supply coming on quite quickly.”
The energy business won’t become much larger than it is today until global oil demand increases significantly, Poloz said.
He was in Edmonton to deliver a speech on economic modelling for the University of Alberta school of business, calling for an updated approach that will lead to more stable, predictable inflation rates and better decisions.
The oil price shock set back the Canadian economy by two or three years, and exporters could face challenges because the value of our dollar is being pulled up against most other currencies by the rising American greenback, he said.
However, Poloz said in the interview that the bottom appears to have been reached in the downturn of the energy industry, which makes up 13 per cent of Canada’s economic activity.
“Altogether, we have reason to have a positive (national) outlook … We’re looking at sort of two per cent growth, a little bit more when we get into the new year data.”
That’s a really important ingredient in any economy’s growth story, especially ours, where the demographics are slowing down
It’s still too early to tell how American trade policies will affect Canada, which likely won’t be apparent at least until the bank’s next monetary policy report in April, Poloz said.
He wouldn’t comment on Trump’s controversial ban last week on refugees and travellers entering the United States from seven predominantly Muslim countries.
But immigration is expected to account for roughly one-third of Canada’s 1.5 per cent potential economic growth rate, he said.
“That’s a really important ingredient in any economy’s growth story, especially ours, where the demographics are slowing down,” he said.
“They disproportionately create new companies … The point is, they create jobs.”