Recovery from the global recession is at hand, but Canadian workers and companies should not assume a quick return to the good, old days, Bank of Canada Governor Mark Carney is warning.
The global recession has dramatically changed the way the world economy will work, he said, and both corporations and labour in Canada will need to make serious adjustments if they want to flourish.
“The thaw is coming,” Carney said in the text of a speech to be delivered to the Winnipeg Chamber of Commerce on Thursday.
“Canada is entering this period of adjustment with many strengths, but the efforts required of us will be historic.”
Carney is not convinced Canada’s private sector has positioned itself to take advantage of the recovery.
While corporate balance sheets are strong and financial conditions are improving, Canadian companies did not invest strategically in their operations during the recession, so their technology is behind the times, the central banker said.
Plus, the competitive position of the U.S. corporate sector is stronger than ever, given the weakened U.S. dollar and the big improvements in productivity in that country, Carney warned.
Canadian companies can no longer rely on American demand, but they can count on stiffer American competition in global markets, he said.
“In short, Canadian companies are emerging from the recession to an altered world – one that may require deeper restructuring and bolder strategic initiatives than currently contemplated.”
Global growth will only resume in fits and starts, he said, and it will be led by emerging markets where Canadians have few inroads.
As for jobs, Carney warned that even though employment has stabilized recently, many of the jobs that disappeared during the recession won’t come back. And many workers now find themselves either underemployed or languishing in long periods of unemployment that will see their skills grow rusty.
Canada may be heading for a period in which unemployment rates are generally higher than they were in the past, Carney said.
“Could Canada experience a jobless recovery?” he asked. “Conflicting forces are at play.”
Companies that need to restructure to deal with a new global reality may be reluctant to restore their workforces right away, he warned. But he also reiterated that demand within Canada is strong, and companies have shown themselves quick to adapt in the past.
“A powerful and sustained restructuring of the global economy has begun,” he emphasized. “Canadian business will need to develop new markets as the traditional advantage of relatively open access to U.S. markets becomes less valuable.”
In the coming year, the Canadian economy will become less dependent on government stimulus and more driven by private sector activity and investment, Carney said.
He did not make any comment on interest rates going forward, nor did he alter his most recent forecast. In January, the Bank of Canada projected 2.9 per cent growth in 2010 and 3.5 per cent in 2011. The forecast is slightly more optimistic that Bay Street projections, but recent data suggest it is on the right track.
But in order for global growth to resume and remain stable, the United States and others need to stabilize their deficits, Carney said. Plus, U.S. savings need to increase, while demand within China and other major emerging markets needs to expand.
And exchange rates in China and elsewhere need to appreciate, Carney said.
If these things don’t happen, the world economy could easily plunge back into trouble, he added.
