Canada could face persistently weak exports for years as companies continue to lose ground in the all-important U.S. market.
Bank of Canada Governor Stephen Poloz warned Tuesday that a “growing wedge” has emerged over the past couple of years between the growth of Canada’s exports and global demand.
“And make no mistake,” he told members of the House of Commons Finance committee. “This wedge is real and it is big.”
Canadian exports to the United States alone are $35-billion to $40-billion below where they should be right now, based on past recoveries, Mr. Poloz said.
The Bank of Canada has become increasingly concerned that Canadian exporters have not yet regained the sales they lost during the recession, even as the global economy has come back.
The problem is particularly apparent in the U.S. market – the destination for more than 70 per cent of Canadian exports. And it’s concentrated in exports of non-energy products, particularly manufactured goods.
Canada’s share of non-energy imports in the United States has fallen to 11.4 per cent in 2013 from more than 17 per cent in 2000, according to a background paper released last week by the bank. And the bulk of that dwindling market share has occurred since 2008.
“Competitiveness challenges continue to weigh down our export sector’s ability to benefit from stronger growth abroad,” Mr. Poloz told the committee.
Canada’s export performance will remain below expectations unless underperforming industries improve their competitiveness or new companies emerge to take up the slack, he said.
The Bank of Canada report identifies autos, chemicals and food and beverage manufacturers as the sectors facing the most significant competitive challenges.
The result is that Canada’s economy will continue to lag the rest of the world.
The bank is forecasting global growth of 3.3 per cent this year and 3.7 per cent in 2015 and 2016. In Canada, gross domestic product will grow just 2.5 per cent in in 2014 and 2015, according to new bank forecasts released last week.
Mr. Poloz repeated earlier warnings that the central bank might have to cut rates if the economy doesn’t pick up as expected. He insisted that a reduction in the bank’s overnight lending rate – set at 1 per cent since September, 2010 – remains a “relevant” option. The bank is officially in neutral – meaning its next interest rate move could be rate cut or a rate hike. But most economists are convinced the central bank will start raising rates, likely in the second half of next year.
In response to questions, Mr. Poloz said he’s curious about the controversial theories of French economist Thomas Piketty, whose best-selling book Capital in the 21st Century has sparked a renewed debate about wealth inequality in the United States. Mr. Piketty advocates a global tax on capital to stem a dangerous and rising gap between rich and poor.
Mr. Poloz said he’s downloaded the book to his iPad, but hasn’t had a chance to read it yet. “It‘s a hypothesis I would have to understand better," he said.