An extraordinary speech today from Bank of Canada governor Mark Carney. Since it draws on trends that are years in the making, and analysis that would have been done some number of weeks or months ago at the Bank, one suspects it has much to do with Harper’s recent turn to China and the rest of Asia.
In a speech today to the Kitchener-Waterloo Chamber of Commerce, Carney flattered his hosts for a minute and then said Canadian recessions have always been cured, eventually, by export-led recoveries. But not this time.
“Exports still have not regained their pre-crisis peak, and in fact remain below their level of a decade ago. Canada has steadily lost global market share throughout this period.”
The current unsteady recovery is driven by household spending, which in turn is driven — to an extent “unsustainable over the medium term” — by household debt. As for exports? “Canada’s share of world exports has been declining since the turn of the millennium. In fact, our performance has been the second worst in the G-20.” The Canadian export lag amounts to 5 points behind average global export growth, every year.
Blame the high dollar? Yeah, sure, Carney says. But it’s not the main culprit. “Our exports are concentrated in slow-growing advanced economies, particularly the United States, rather than fast-growing emerging markets,” Carney said, on a day when the Prime Minister was visiting the White House.
“In short, our underperformance prior to the [2008-09] crisis was more a reflection of who we traded with than how effectively we did it.”
And it’s gotten worse since 2008. “The combination of overexposure to the U.S. market and underexposure to faster-growing emerging markets is almost entirely responsible for Canada’s further loss in world market share.”
Is this the way it has to be, Governor Carney? “It does not have to be this way. Many advanced countries have been more successful at capitalizing on the immense opportunity that emerging markets in general and China in particular represent.”
I wonder whether these trends can be expected to continue. “The obvious question is whether we can expect these trends to continue. The answer is yes.” The U.S. is tapped out as a growth market. But rapidly urbanizing Asia — “China and India are housing the equivalent of the entire population of Canada every 18 months” — offers much more opportunity. “Commodity prices have risen well above their historical averages, and are likely to remain there for some time.” And incidentally the dollar’s not coming down soon.
So Canadian business needs to refocus on commodities exports to Asia. Wasn’t this message a bit out of place, given that Carney was delivering it in Canada’s Technology Triangle? No way. “It is clear that K-W cannot directly satisfy China’s growing appetite for commodities, but you can and are taking advantage of other areas of the country that do. One out of twelve oil sands manufacturers and suppliers are from this region, and Ontario’s exports to Alberta of mining-related services grew 44 per cent in the last year measured.”