Skip to main content

Nouriel Roubini said the value of the Canadian dollar is too high, given the need to keep the country’s manufacturing sector intact.

Fred Lum/The Globe and Mail

Nouriel Roubini, the bearish economist known as Dr. Doom, is now moderately enthusiastic about the Canadian economy, although he thinks our dollar should be 10 per cent below where it is now.

Mr. Roubini, speaking to a Bay St. crowd at a meeting of the Economic Club of Canada in Toronto Monday, said Canada's economy is "doing okay, [but] not exceptionally." While growth of 2.3 or 2.4 per cent is expected this year and will go a bit higher next year, there are challenges, he said. First of all, commodity prices expected to decline, while the resource boom has led to a relatively high dollar that is "crowding out manufacturing," he said.

Mr. Roubini said the value of the Canadian dollar is too high, given the need to keep the country's manufacturing sector intact. While the shift to commodity exports has been healthy for the overall economy, it has caused a lot of regional disruption, he noted. And if there a major correction in commodities in the coming years, it will be a "massive shock" to that sector while manufacturing exports will have declined in importance and not be able to take up the slack.

Story continues below advertisement

Consequently, "I would use, more aggressively, monetary policy to weaken the currency," Mr. Roubini said. "If your currency was 10 per cent weaker that would help manufacturing and it will not cause a significant amount of inflation, which is currently well below the target. The risk of doing that is relatively modest. ... Keeping your currency weaker right now is important."

In an interview after his speech, Mr. Roubini said there are a variety of measures the Bank of Canada could use to lower the value of the dollar. "They could talk down your currency by saying you wouldn't mind if it is weaker," he said. The case for cutting rates isn't strong, he noted, but the bank could signal that it is in no rush to raise rates until the U.S. Federal Reserve Board has done so.

"If the Fed starts to raise rates some time next year, and the Bank of Canada waits for a few months, if not quarters, then money is going to flow out of Canada into the U.S. and that is going to weaken the currency."

In his speech Mr. Roubini repeated his view, expressed last year, that Canada is among the countries where the housing market has "signs of frothiness, if not an outright bubble."

He said he is not predicting a bust in Canada – partly because of the strength of the Canadian banks and the absence of sub-prime "excesses" – but a "meaningful correction" could occur and that could dampen the economy.

"I would not expect a real crash. The worry is that even if it is a soft landing, if home prices fall, and consumers don't walk away from their debt, that is going to slow down consumption growth."

As for the world economy, Mr. Roubini noted that the rapid growth in most emerging markets has hit a sharp slowdown. Countries such as India, Brazil, South Africa, Indonesia and Turkey are the most vulnerable. Going forward, however, some countries that are tied to the improved growth of more advanced economies will do better, he said. Among those are South Korea, Malaysia, the Philippines, Hong Kong, Singapore, Poland and the Czech Republic.

Story continues below advertisement

In advanced markets, many of the risks of the past few years have diminished and there should be modest growth of about 2 per cent on average, he said.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter