Emerging Markets Key to Export Growth, Carney Says

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The Globe and Mail Apr 04, 2012

Indicator by indicator, North America’s recovery is growing stronger, while several European countries sink deeper into the doldrums.

The patchy nature of the rebound in the world’s major economies was on display Monday, with one report showing U.S. manufacturing speeding up last month, both in terms of production and jobs, and a range of European readings heightening recession fears. Reports from China, the engine of the global recovery to date, were mixed.

Looking past the ebb and flow of monthly data, analysts say growth will be faster and more reliable in developing nations such as China, India and Brazil, than in either the United States or Europe for many years. This highlights why the Canadian government is pursuing trade deals in other regions.

Bank of Canada Governor Mark Carney stressed the point Monday, even as he sounded more upbeat about North America, and indicated he believes Europe’s crisis is now less of a threat to the global economy.

Speaking two weeks before he releases a quarterly forecast on April 18, Mr. Carney told a business audience in Waterloo, Ont., that the external “headwinds” that have forced him to keep interest rates on hold since September, 2010, have eased.

In the United States, he said, the economy is growing modestly, reflecting the difficulty of recovering from a deep financial crisis. “Recent data have been encouraging,” he said, such as the rate at which the badly bruised American labour market has created jobs in the past three months. Meanwhile, Europe’s problems are “far from resolved,” but have “moved from the acute to the chronic.”

This came as reports in Europe showed unemployment in the 17-nation euro zone hit a 14-year high of 10.8 per cent in February, putting the jobless rate just shy of a record, and that manufacturing in the region continued to contract.

Canada’s economy has been “somewhat stronger and the degree of slack somewhat smaller” than policy makers were expecting even just weeks ago, Mr. Carney indicated, which suggests his next forecast will be more optimistic, even if he remains a long way from raising interest rates.

“What he’ll probably do is indicate that the landscape looks a little bit better than it did two or three months ago, but there’s still concerns,” Peter Buchanan, an economist with CIBC World Markets, said in an interview. “There is a shift in tone here, but it’s a fairly subtle one.”

Still, regardless of the improving short-term prospects, policy makers have long urged Canadian companies to reorient their export strategies.

In his speech, titled “Exporting in a Post-Crisis World,” Mr. Carney noted that about 85 per cent of Canadian exports go to laggard countries including the U.S., Japan and various European nations, while the biggest emerging markets together make up just 8 per cent of overseas sales.

Even after the U.S. economy recovers “cyclical losses” from the biggest downturn since the Depression, he said, it will be $1-trillion smaller three years from now than was projected before the crisis. By contrast, China and India are housing the equivalent of Canada’s population every 18 months, and a “massive new middle class” in such places is growing by 70 million people a year.

Traditional markets may never regain their past form, he said, and factors boosting the currency (high commodity prices, Canada’s attractiveness to investors) are unlikely to go away. As a result, exporters need to look elsewhere and forget about waiting for “a more favourable exchange rate,” he said.

“This is an adjustment that one can’t change overnight, but it’s something we believe needs to be addressed,” Mr. Carney told reporters after his speech. “Business investment has picked up quite smartly, but it needs to sustain, for competitive imperatives and really to take advantage of the opportunities that are out there.”

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