WINNIPEG — Recovery from the global recession is at hand, but there will be no quick return to the good old days, Bank of Canada Governor Mark Carney warned Thursday.
The global recession has dramatically changed the way the world economy works, and both corporations and labour in Canada will need to make serious adjustments if they want to flourish, Carney told a business luncheon Thursday.
“The thaw is coming,” Carney said in a speech to the Winnipeg Chamber of Commerce.
“There is, however, a catch. The economic climate that Canadian businesses will face will be considerably different. Canada is entering this period of adjustment with many strengths, but the efforts required of us will be historic.”
Carney is not convinced Canada’s private sector has positioned itself to take advantage of the recovery.
While corporate balance sheets are strong and financial and credit conditions are improving, Canadian companies did not invest strategically in their operations during the recession, so their technology is behind the times, he said.
Plus, the competitive position of the U.S. corporate sector is stronger than ever, given the weakened U.S. dollar, he said, and Canada’s growth in productivity has lagged behind the U.S.
A weaker U.S. currency makes American exports of everything from machinery and furniture to citrus fruit and cars cheaper in Canada and other U.S. trading partners. That puts more more pressure on Canadian companies to compete or lose market share.
“The combination of slower productivity growth (in Canada) and demographics could mean that the rate for potential growth for the Canadian economy will be closer to two per cent, going forward, than the three per cent average rate we enjoyed in the first half of the past decade and the latter half of the 1990s,” he said.
“If this differential were to persist over a decade, the cumulative loss of income would be almost $30,000 for every Canadian.”
Global growth will only resume in fits and starts, he said, and it will be led by emerging markets where Canadians have made few inroads.
As for jobs, Carney warned that even though employment has stabilized recently to about 8.5 per cent, many of the jobs that disappeared during the recession won’t come back. And many workers now find themselves either underemployed or languishing in long periods of unemployment that will see their skills grow rusty.
Canada may be heading for a period in which unemployment rates are generally higher than they were in the past, Carney said.
“Could Canada experience a jobless recovery?” he asked. “Conflicting forces are at play.”
Companies that need to restructure to deal with a new global reality may be reluctant to restore their workforces right away, he warned. But he also reiterated that demand within Canada is strong, and companies have shown themselves quick to adapt in the past.
“A powerful and sustained restructuring of the global economy has begun,” he emphasized. “Canadian business will need to develop new markets as the traditional advantage of relatively open access to U.S. markets becomes less valuable.”
In the coming year, the Canadian economy will become less dependent on government stimulus and more driven by private sector activity and investment, Carney said.
He did not make any comment on interest rates going forward, nor did he alter his most recent forecast. In January, the Bank of Canada projected 2.9 per cent growth in 2010 and 3.5 per cent in 2011. The forecast is slightly more optimistic that Bay Street projections, but recent data suggest it is on the right track.
But in order for global growth to resume and remain stable, the United States and others need to stabilize their deficits, Carney said. Plus, U.S. savings need to increase, while demand within China and other major emerging markets needs to expand.
And exchange rates in China and elsewhere need to appreciate, Carney said.
If these things don’t happen, the world economy could easily plunge back into trouble, he added.