OTTAWA—Bank of Canada governor Stephen Poloz is not expecting a recovery by Canadian exporters that succumbed to the financial crisis, but he remains optimistic replacements will eventually step up to fill the void.
For it to happen, Poloz is counting on companies that pulled through the turmoil to expand their operations and for the emergence of new exporting firms.
“Canada’s export sector not only cut back on production and laid off workers, many companies restructured, many simply disappeared,” Poloz said in prepared remarks of a speech he delivered to the Canadian Council for Public-Private Partnerships (CCPPP) in Toronto.
“When companies downsize, relocate or close their doors, the effects on the economy are permanent. Those specific lost exports will not recover.”
Poloz highlighted recent Bank of Canada data that found exports from more than 500 under-performing, non-energy categories tumbled in value by more than 75 per cent since 2000.
The sale of those products, the bank said, would have added $30 billion worth of exports last year had they instead grown along with foreign demand over that period.
The central banker’s address also touched on some of the “headwinds” Poloz believes are holding back the global economic recovery, such as the presence of uncertainties like market volatility, geopolitical problems and companies still hobbled by the crisis.
Poloz told a news conference after his speech that he’s still expecting bump in new export businesses.
“We have been creating new companies, but, net, the population of companies seems not to have begun to rise yet,” he said in response to a question about his “serial disappointment” while waiting for Canadian exports to re-emerge.
“So a true, self-sustaining recovery will have that characteristic: Growth in the population of companies. And many of them will be exporting companies and they will be the ones that fill that bucket back up again.
“I think that just requires more patience than I thought.”
The Bank of Canada estimates it will take two years for the Canadian economy to reach full capacity, Poloz said.
His speech also pointed to how the crisis inflicted long-lasting, negative effects on Canada’s labour market, pushing the job-creation rate well below what should be expected from a healing economy.
The consequences have included little change in total hours worked while more than 900,000 part-time workers in Canada are hoping to find full-time positions, he said.
Meanwhile, he said some 200,000 young people are out of work, underemployed or back in school trying to improve their employment prospects.
“I bet almost everyone in this room knows at least one family with adult children living in the basement,” said the prepared speech.
“I’m pretty sure these kids have not taken early retirement.”
Poloz said he’s confident, however, that the damage to Canada’s job market can recover over time, as the expected demand for exports grows and uncertainty about the future fades.
“The good news is that these destructive effects should be reversible over time,” said Poloz.
Last month, the Bank of Canada’s monetary policy report warned the bulk of Canadian economic activity must start moving from households to business investment and exports.
The report cautioned about the “renewed vigour” it detected in the housing market and consumer spending since the summer, due to the central bank’s low trendsetting interest rate.
The Bank of Canada has maintained its key interest rate at one per cent for more than four years.
In his speech, Poloz offered an explanation as to why companies have so far been hesitant to make investments, even as the economy shows signs of gaining traction.
“In this uncertain economic climate, companies actually feel like they are taking a lot of risk,” he said.
“And until the recovery is more certain, especially in export demand, for many, it is too risky to expand their businesses.”
In a report released the same day Poloz gave his speech, The Conference Board of Canada predicted sunnier days ahead for Canadian exports—an improvement it predicted would encourage business investment and more hiring in the new year.
It found Canada’s trade sector had been performing better thanks to boosts from the stronger United States economy and the weaker Canadian dollar.
The think-tank found exports “increased sharply” in this year’s second quarter and approached pre-recession levels.
“The outlook for Canada’s trade sector is bright,” said the Conference Board’s autumn outlook.
“After acting as a drag on overall economic activity in recent years, the sector is set to be a driver of economic growth, at least in the short term.”
The report predicted the growth of Canada’s real gross domestic product (GDP) to rise to 2.6 per cent in 2015, improving on this year’s increase of 2.2 per cent.