CALGARY, Sept. 7, 2012 /CNW/ - The global commodities boom drives
enormous benefits for Canada, including higher incomes and greater
economic security, Bank of Canada Governor Mark Carney said today in a
speech to the 2012 Spruce Meadows Changing Fortunes: Global Economies Round Table.
"Most fundamentally, higher commodity prices are unambiguously good for
Canada," Governor Carney told delegates. "The strength of Canada's
resource sector is a reflection of success, not a harbinger of
The Governor addressed the diagnosis of Dutch Disease for the Canadian
economy that suggests an ephemeral commodities boom is causing
permanent losses in the manufacturing sector. He countered with three
First, despite the current strains on global growth, commodity prices
are expected to remain elevated, primarily driven by a sustained
increase in demand, much of it stemming from the rapid urbanisation of
Second, the decline in importance of the manufacturing sector is "part
of a broad, secular trend across the advanced world," Governor Carney
said. This trend reflects major forces of globalisation and
Third, while rising commodity prices account for about half of the
appreciation of the Canadian dollar over the past decade, other
factors, such as the multilateral depreciation of the U.S. dollar and
the fact that Canada is "a rare safe haven," have also contributed to
the increase in the value of the currency.
Bank of Canada analysis shows that regardless of the cause of a
commodity-price increase, the resulting improvement in Canada's terms
of trade causes income, wealth and GDP to rise. This is the case
whether the source of the increase is stronger U.S. demand, stronger
demand from emerging Asia—which is behind the current boom—or a
transitory reduction in supply.
The Governor also addressed the argument that the Bank of Canada should
lean against a commodity-driven exchange rate appreciation. Bank of
Canada analysis shows that, over time, such a move would cause wages
and inflation to rise, resulting in an appreciation of the real
exchange rate and leaving non-resource exporters faced with the same
competitiveness challenges. "The cost of this misadventure is lower
output of about 1 per cent and higher volatility in inflation, output
and employment than when the exchange rate is allowed to do its work,"
the Governor said.
To conclude, the Governor said policy can help minimise the costs of an
inevitable, difficult structural adjustment associated with the
resource boom and maximise the benefits of such an adjustment for all
Canadians. Efforts should be focused on facilitating adjustment,
developing new markets at home and abroad, and increasing investments
in skills and productive capital.
SOURCE: Bank of Canada
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