Carney: Don’t blame export woes on strong dollar
TORONTO - Canada cannot devalue its way to prosperity or blame weak export levels solely on the strong Canadian dollar, the head of the Bank of Canada said on Wednesday.
Speaking to an auto union that blames the strong dollar to higher costs for automakers, Governor Mark Carney noted that Canada’s export performance over the last decade has been the second worst in the G20 grouping of major and emerging nations.
“Some blame this on the persistent strength of the Canadian dollar. While there is some truth in that, it is not the most important reason,” he told the Canadian Autoworkers Union, describing over-exposure to the mature and sluggish U.S. market as a more important factor.
“Net, our strong currency explains only about 20 percent of our poor export performance.”
The CAW has been a tough critic of the strong Canadian dollar, arguing that it inflates the cost of making cars in Canada. The union launches talks with the Big Three Detroit car companies later this year and will be seeking a share in the firms’ newfound profitability.
Carney said the Bank of Canada watches the dollar’s level as it sets monetary policy, but said a dramatic shift in the currency’s value might not have as much of an impact as some could expect.
Noting that interest rates remain very low, he defended the bank’s repeated statements that it would eventually need to remove stimulus from the economy, which means raising interest rates. But recovery from the global economic malaise would not be easy, he added.
“This is not a normal recovery and expansion, and we have fundamental challenges. This is going to be a long slog,” he said at a news conference after the speech.
Carney also noted that the strong currency and weak foreign demand and challenges such as the strong dollar mean exports are likely to remain below their pre-recession peak until the start of 2014.
He said Canada should focus on exporting to faster-growing emerging nations, while firms needed to improve the skills of workers and take advantage of new technology.
“We cannot devalue ourselves to prosperity or cut ourselves off from the world and hope to rely on ever-increasing borrowing by Canadian consumers,” he said in the speech.
Near-record low interest rates have persuaded Canadians to borrow heavily against the value of their property, driving borrowing to record levels, and Carney noted that there were signs of overbuilding and overvaluation in some parts of the real estate market.
Carney has taken a more hawkish line than most central bankers, noting the Canadian economy’s underlying momentum was roughly in line with the potential that it has to grow.