(Adds comment on business investment)
By Alastair Sharp
TORONTO, April 18 New technologies could help
boost Canada's flagging productivity and income growth, but
could also widen income inequality as some workers benefit from
automation and others are hurt by it, a senior Bank of Canada
official said on Tuesday.
In a speech that reiterated the central bank's concern about
protectionism but did not discuss the direction of monetary
policy, Senior Deputy Governor Carolyn Wilkins said free trade
has given Canadian companies access to much bigger markets and
greater incentives to invest.
"Trade is a great driver of productivity, and so the risk of
growing protectionism concerns me," Wilkins said in a speech to
the Toronto Region Board of Trade. "Disrupting supply chains and
reducing incentives to compete will not create more jobs and
incomes in the long run."
The Bank of Canada has long pointed to uncertainty as a big
factor behind sluggish business investment, and last week said
protectionism and the unknowns of U.S. economic and trade policy
under U.S. President Donald Trump are the biggest risk to
Canada's growth outlook.
Noting that business investment has not been strong, Wilkins
said spending has been muted by uncertainty, as well as the cost
of red tape and electricity.
"It's really, from our read, the combination of those costs
and uncertainties outside of financing that are holding some
businesses back right now and clearly the uncertainty that
surrounds the trade policies of the new administration in the
U.S. haven't made that any easier," Wilkins said in answer to an
audience question after the speech.
Still, Canada is well-positioned to benefit from innovation,
Wilkins said, but must manage the transition to avoid a
hollowing out of the middle class.
"Worsening income inequality can lead to weaker
macroeconomic outcomes and financial instability," Wilkins said.
She said shifts in income distribution can also alter the
channels through which monetary policy actions affect the
economy, since interest rates affect people differently.
Wilkins said those with higher incomes tend to be sensitive
to the impact of interest rates on asset prices, while those
with lower incomes are likely more sensitive to the impact of
rates on incomes and debt-service costs.
Canada can create "inclusive prosperity" if it embraces new
technologies while managing negative side effects like job loss.
While education and training will be key to success, governments
can use tools such as taxation and transfers to avoid income
polarization, Wilkins said.
(Reporting by Andrea Hopkins and Leah Schnurr in Ottawa;
editing by Chizu Nomiyama)