OTTAWA — Prospects for the Canadian economy are improving for the immediate future but the country may be reaching the limits of its growth potential in the longer term unless there’s radical change, Bank of Canada governor Mark Carney says.
In a speech prepared for a Kitchener-Waterloo business audience Monday, the bank governor said he sees some reasons for optimism in recent global developments.
Europe is no longer in crisis, he said, although it is not out of the woods. The region’s debt challenges have moved from “the acute to the chronic.”
Meanwhile, the United States has begun growing slowly, the fundamentals of household spending have improved and employment has finally rebounded.
“The considerable external headwinds have abated somewhat,” Carney said in notes from the speech released in Ottawa.
But it’s the longer-term that concerns Carney, and there the picture is not so bright.
Returning to a theme he has expounded on before, Carney warns that Canada’s economy just can’t continue to trudge along on the same path and expect to prosper.
What it has been doing is depending on consumer spending and trading to the United States to keep its head above water, but both options are tapped out.
“As effective as the reliance on domestic demand in general and household spending in particular has been, the limits of this growth model are becoming clear,” he said, citing the record levels of household debt, slow income growth and that employment in construction to support a hot housing market is already at the highest level in 35 years.
Meanwhile, exports — the other major engine of growth in Canada — have fallen behind mostly because Canada has hitched its wagon to the wrong markets, Europe and the United States.
As a result, exports remain eight per cent below pre-recession levels even as the overall economy has totally recovered.
“Our exports are concentrated in slow-growing emerging economies, particularly the United States, rather than fast-growing emerging markets,” he said.
“In short, our underperformance prior to the crisis was more a reflection of who we traded with than how effectively we did it,” a situation that has been exacerbated the recession.
Canada may call itself an exporting nation, but it is doing it badly, according to Carney’s analysis.
Since 2000, Canada has the second worst export performance in the G20 group of nations. As a part of the total global export market, Canada has gone from a share of 4.5 per cent to about 2.5 per cent and the country’s exports of manufactured goods has been cut in half, he said, a large reason why employment in the factory sector has fallen nearly 500,000 jobs.
The alarming message underscores the reason the Harper government has made trade, particularly to China, India, Brazil and other emerging powers, a key priority in its economic agenda.
Over the past year, the prime minister and his trade point man, Ed Fast, have hop-scotched across Asia, making trips to India, China, Japan, Indonesia and Korea, at each stop announcing new trade deals or negotiations. The government has also expressed interest in joining the Trans-Pacific Partnership, a fast-emerging trade block that may necessitate abandoning the country’s supply management system in dairy and poultry.
Carney’s prescription, has he has previously urged, is for businesses to shift their focus to where growth is, and to start investing in innovation to improve their productivity in order to compete.
He notes that since the recession, emerging markets have accounting for two-thirds of global growth and one-half of import growth, a trend expected to continue for decades.
“This is where Canadian businesses must increasingly look for growth,” he said.