OTTAWA (Reuters) – Canadians have saved up a massive nest egg through the pandemic and a rush to spend that money could “meaningfully affect” economic growth, a Bank of Canada deputy governor said on Thursday.
Canadians on average spent C$4,000 ($3,190) less in 2020 because of the pandemic, Deputy Governor Lawrence Schembri said in a speech to the restaurant industry. The amount, coupled with higher household incomes due to emergency aid transfers, adds up to C$180 billion in excess pandemic savings.
“There is much uncertainty about what Canadians will do with these savings. This is important because these savings are large enough to meaningfully affect the trajectory of the economy,” Schembri said. “If Canadians spend more than we expect, it would strengthen the recovery in consumption and employment.”
If Canadians spend 15% of those savings from the second quarter of this year through the end of 2023, nominal household spending growth in 2021 would jump to 5% from the 4.3% the bank projected in January, Schembri said.
“Because the demand for labor would increase, we estimate that employment would rise by more than we had projected – by about 30,000 jobs, on average – each year over the next three years,” he said.
There are, however, downside risks, he said, including the potential for a third wave of infections, a delay to the vaccine rollout, or if vaccines prove less effective against variants.
On interest rates, Schembri reiterated that the benchmark rate will remain at 0.25% until the economic slack is absorbed.
“In our January forecast, we projected this would not happen until into 2023. We will update our forecast in April,” he said.
Schembri said the central bank is closely monitoring some housing markets for speculative activity amid large price increases.
The Canadian dollar was trading 0.6% higher on Thursday at 1.2547 to the greenback, or 79.70 U.S. cents, having earlier touched a two-week high at 1.2538.
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