The Bank of Canada’s top deputy said the country is likely to come out of the pandemic with a lower outlook for potential growth and permanent labour force scarring, and that conventional wisdom must be challenged to find solutions.

Senior Deputy Governor Carolyn Wilkins, in a speech Thursday, reiterated the central bank projects potential output will be 3 per cent lower by the end of 2022 versus their pre-pandemic forecast, with weak capital investment accounting for the bulk of the downgrade. She said policy makers and businesses will need to think outside the box as a result.

“The pandemic has damaged the potential for Canada, and other countries worldwide, to generate sustainable economic activity,” Wilkins said via webcast to the Munk School of Global Affairs and Public Policy. “We need to set our sights higher to help businesses create good jobs and to make high debt loads more manageable.”

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Investments in areas such as education, infrastructure, technology and greening the economy would help potential output growth, Wilkins said, adding that education improves social mobility and skills in the workforce.

Other examples of policies that promote both social and economic goals are childcare, which boosts female participation in the workforce and the government’s wage subsidies, which allow employer and employee connection to remain intact.

“How exactly these are designed, however, is the subject of much debate.” said Wilkins, whose last day at the bank will be Dec. 9. She is stepping down from her role as second in command before the end of her seven-year term in May, capping two decades of work at the Ottawa-based central bank.

The lower profile for potential output means a significantly diminished ability to generate goods, services and incomes on a sustainable basis, Wilkins said. “And many of those scars could become permanent without deliberate actions from all of us.”

--With assistance from Erik Hertzberg.