QUEBEC _ Uncertainty on the trade front is restraining business investment, a senior Bank of Canada official said Thursday.
Deputy governor Sylvain Leduc said in a speech in Quebec City that the central bank expects business investment to increase, but not as much as it could without such uncertainty.
“That said, business sentiment and investment intentions remain positive, suggesting that firms are getting on with business and adjusting to this more volatile environment,” Leduc said according to a prepared text released in Ottawa.
“As such, the greater-than-expected increase in imports of machinery and equipment in the first three months of the year bodes well for business investment growth.”
The speech came after an announcement by the United States that it would impose tariffs on Canadian, Mexican and European Union steel and aluminium as of midnight.
Canada, Mexico and Europe were exempted from import duties of 25 per cent on steel and 10 per cent on aluminum when they were first imposed in March, but those exemptions expire Friday.
Barring an 11th-hour reprieve, those exemptions will expire as scheduled.
The U.S. tariffs come as talks regarding the North American Free Trade Agreement continue.
The Bank of Canada announced Wednesday that it would keep its key interest rate on hold, but dropped a reference to remaining “cautious”. Economists interpreted the change as a hawkish signal suggesting that the next interest rate hike may be sooner rather than later.
However, the central bank also noted that ongoing uncertainty about trade policies was dampening global business investment and noted that stresses are developing in some emerging market economies.
Leduc repeated remarks included in the interest rate announcement that the Bank of Canada will take a gradual approach to changes in its key interest rate and be guided by the economic data.
Statistics Canada said Thursday that growth in the first quarter of this year came in at an annualized rate of 1.3 per cent, a result that matched the central bank’s forecast in its April monetary policy report.
The first quarter results were weaker than many private-sector economists had expected, but some pointed to strong growth in March to support their forecasts for an interest rate hike by the Bank of Canada in July.