OTTAWA — Canada’s economy is underperfoming because firms have failed to take advantage of turbo-speed growth in emerging markets, says Mark Carney, citing the worst post-slump trade performance in six decades.
In a speech prepared for a Kitchener-Waterloo business audience Monday, the Bank of Canada governor characterized the country’s export record since 2000 as a dismal failure.
It is the worst post-recession record of any recovery since World War II, he said, adding that aside from the United Kingdom, it is currently the worst in the G20 club of major economic nations.
Carney wants Canadian businesses to turn their attention away from traditional markets like the U.S. and focus on booming economies in Asia.
“Exports have not regained their pre-crisis peak, and in fact remain below their level of a decade ago,” he said. “The combination of overexposure to the U.S. market and underexposure to faster-growing emerging markets is almost entirely responsible.”
Referring to Canada’s current economy, Carney had relatively positive things to say.
With Europe’s debt problems ameliorating — he suggested it is no longer a crisis — and as the U.S. recovery picks up steam, the headwinds that have held back Canada’s economy are abating.
But the domestic engine of Canadian growth has essentially run out of fuel, he cautioned. Consumers are heavily in debt and tapped out, and growth in construction for homes has also run its course, since employment in the sector is now at a 35-year-high.
For the economy to expand in the future, it must ramp up on exports, and businesses must become more innovative and invest in machinery and equipment, he said.
“This was essentially a pep talk for business,” said economist Michael Gregory of BMO Capital Markets.
“My sense is he really wants the business sector to really ramp up because the economy can sure use it, and it is also essential to survival.”
Carney has pounded the drum for Canadian firms to invest and broaden their horizons beyond the safe and close U.S. market for years. Monday’s speech was different in that he was the most detailed in amassing his evidence and most assertive in recommending a course of action.
The fact is that Canada as an exporting nation has been sliding in importance since 2000, being outpaced in the race for markets by others by about five percentage points annually.
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 have been cut in half, he added, a large reason why employment in the factory sector has fallen nearly 500,000 jobs.
Part of the trend is due to the strong Canadian dollar reducing competitiveness, he said, but not all, and not most. More important is that Canadian firms still trade primarily with the slow-growing U.S., where the dollar comparison is most likely to do damage.
That model of trade is played out. The dollar is unlikely to retreat in relation to the U.S. currency, the American economy is entering a protracted period of slow growth, and commodity prices are going to stay high.
“In short, our underperformance prior to the crisis was more a reflection of who we traded with than how effectively we did it,” Carney said, a situation that has been exacerbated the recession.
“It doesn’t have to be this way,” he added. “Germany has maintained its market share in manufactured goods be exporting capital goods and autos to China, and more broadly emerging-market economies. Australia has gained substantial market share in its exports of commodities to fill rising demand from China.”
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 is for businesses to gear up by becoming more competitive and shift their focus to where growth is.
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 won’t change in the foreseeable future, he said.
“This is where Canadian businesses must increasingly look for growth,” Carney concluded.