OTTAWA (Reuters) - The ongoing renegotiations of the North American Free Trade Agreement are a major source of economic uncertainty for Canada, which would face a negative shock if the pact were to be ripped up, Bank of Canada Governor Stephen Poloz said in a newspaper interview.
While strong economic growth has prompted the central bank to raise interest rates twice this year, the Bank of Canada has also said the unknown future of trade policy clouds the outlook. The United States is Canada’s largest trading partner. U.S. President Donald Trump has repeatedly threatened to pull out of the trade pact.
“Of course, we don’t have anything concrete to analyze, just know it would be a negative shock to the Canadian economy if NAFTA were to be ripped up,” Poloz said, according to the St. John’s Telegram.
Poloz told the newspaper the economy would be even stronger if it were not for the uncertainty about what NAFTA will look like, though he said the central bank is heartened that business sentiment has strengthened even amidst the unknown.
“It may be that companies have figured, well, the (U.S.)president hasn’t succeeded in doing much so far, so there’s not an imminent danger,” Poloz said.
“Or it could be just by necessity - they’ve hit capacity and they’re in business, they plan to stay in business, so they plan to invest despite that.”
The interview came after Poloz gave a speech on Wednesday in which he said there is no predetermined path for interest rates, suggesting another rate hike is not imminent.
NAFTA negotiators wrapped up a third round of talks in Ottawa on Wednesday. The three countries said there had been progress made, but acknowledged there was much work still to do to conclude negotiations by the end of the year.
Reporting by Leah Schnurr; Editing by Chizu Nomiyama