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Former governor of the Bank of Canada David Dodge

Sean Kilpatrick/The Globe and Mail

The worst of the economic crisis has now passed, and though some wobbly years remain, former Bank of Canada governor David Dodge expects global growth to speed past 4 per cent by 2015.

"We are maybe five-sevenths of the way along a rather bumpy road for deleveraging in the OECD world, in the advanced economies," Mr. Dodge said Friday in Lake Louise, Alta., at the Bennett Jones Business Forum. "So while we've got a bumpy road over the next two or three years, we are getting to the latter stages of that."

Mr. Dodge pointed to several reasons for hope, most notably close to home.

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"Here in North America, the deleveraging in the financial sector is largely complete, and that gives us some optimism," he said. The same is true in U.S. households, which have dug out of debt holes more rapidly than expected.

They "have made some very real progress, their net worth position is back a little over 80 per cent of where it was and closing fast," he said.

There remain important obstacles elsewhere, however.

"In the peripheral European economies, both households and of course government have a long way to go," he said. China, too, "faces this very major challenge, to shift demand into the household sector."

Overall, though, "we ought not to be too pessimistic," he said.

Yet there remains reason for caution. Central banks are largely played out, Mr. Dodge said, meaning the job of managing economic growth will fall to governments.

And Canada itself faces a couple of more difficult years ahead. Recent growth has largely come on the back of buoyant household spending. But "we are now going to face a situation in 2013 and 2014 where our households certainly won't be able to lever up any more. We'll have to delever a little bit, and that will constrain consumption growth domestically," he said.

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Perhaps the greatest worry for Canada lies with its provincial governments, which face striking debt loads. Those problems make clear the need for federal action, and Mr. Dodge called on Ottawa to increase the "capacity to produce," especially in manufacturing-dependent provinces in central and eastern Canada. He suggested a west-to-east oil pipeline could help, since it could lower energy costs across the country, as well as policies to advance "next-generation manufacturing."

At the same time, those western provinces that form the backbone of Canada's resource economy should count on flattening global commodity demand at the tail end of the so-called "super-cycle," Mr. Dodge said.

But flattening is different from diminishing, and "overall, Canada is better positioned than the rest of the world to work our way through these years," he said.

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