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Digital shift cushioned blow to post-pandemic growth outlook, BoC deputy says

OTTAWA — A Bank of Canada official says the economy’s ability to grow coming out of the pandemic isn’t as hobbled by COVID-19 as the central bank first feared.

Deputy governor Timothy Lane says that’s because the country quickly embraced digital tools such as videoconferencing for remote work and food delivery apps.

He says that should help the economy grow coming out of the pandemic without sparking a run on inflation, which Lane notes should hover around three per cent over the summer because of comparisons to rock-bottom prices from the same time last year.

But he also warns that the digital transformation that has buoyed the economy also brings challenges for companies struggling to find skilled workers and workers whose jobs are being replaced by technology.

Many of the jobs that may be displaced are those already affected the most during the pandemic, such as retail worker, which are disproportionately held by women, young people, low-wage earners and racialized Canadians, Lane says.

That speaks to a need for policymakers, businesses and schools to work together to prepare students for jobs in the digital economy, he says.

“The digital transformation has not only been very helpful during the pandemic, but it also stands to increase our productivity and, in turn, our growth potential for years to come,” Lane says in the text of his speech to Advocis, an association of financial advisors.

“But we have to be mindful of the challenges associated with this transformation — and do all we can to put people and businesses in the best position to benefit.”

How much help the economy will need from the central bank and for how long is shrouded in uncertainty, Lane says. He says the technological shift that is accelerating structural changes in the economy also makes it harder for the bank to gauge the economy’s growth potential without creating inflation.

The bank hasn’t changed its economic aid program despite growth figures for the first quarter falling short of the Bank of Canada’s projections, citing the need for more robust consumer spending among other data points indicating a more resilient foundation.

Statistics Canada reported last week that real gross domestic product grew at an annualized rate of 5.6 per cent in the first quarter. The bank’s latest outlook forecast growth of seven per cent in the first quarter, and 3.5 per cent in the second quarter.

Lane says the bank still expects growth this quarter will come close to its expectations, despite the loss of some 275,000 jobs over the last two months.

He adds that this setback should be temporary with vaccinations rates rising and lockdowns set to loosen.

The bank’s key policy rate remained on hold at 0.25 per cent Wednesday, and federal bond purchases are to continue at the current pace of $3 billion per week.

The bank doesn’t plan to make any changes to its key rate until the economy recovers, which it currently expects to see in the second half of next year.

This report by The Canadian Press was first published June 10, 2021.

The Canadian Press