‘Nature of global growth is shifting,’ and not just for commodities: Carney – by James Munson (Part 2 of 3)(iPolitics.ca – Septmeber 20, 2012)


iPolitics James Munson interviewed Bank of Canada Governor Mark Carney to get his thoughts on Canada’s role in the global commodities supercycle this past Friday. In Part 1, he explained his view that the resource boom is “unambiguously good” for Canada. Today, in Part 2, Carney explains the supercycle as part of a larger global economic restructuring. And on Friday, he’ll describe the policy and investments options Canada has at its disposal to best take advantage of high commodity prices.

Mark Carney keeps changing the subject.

The governor of the Bank of Canada has agreed to an interview to discuss the resource boom – and whether it’s good for Canada – but the conversation keeps turning to the global economic situation.

“The nature of growth globally is shifting,” Carney said. “In our opinion, we need a sustained strategy to really build our penetration of emerging markets and that is well beyond commodities – that is not a commodities statement.”

That’s the trouble with the resource boom, or the commodities supercycle as it’s sometimes called. It can’t be switched off and on to benefit other businesses that may be having a hard time adjusting to the resource sector’s newfound success.

In Carney’s view, the commodities boom is part and parcel of a new global economic landscape where growth is driven by emerging economies – a landscape that has for only one of its consequences a stronger draw on commodities.

It requires an economic adjustment that should involve rethinking how we sell manufactured goods as well as resources, he said.

“That adjustment, if we do it right, will take place over the course of a decade and it requires a very clear-eyed focus and a sustained focus on how do we reorient manufacturing and services exports with more east-west than north-south,” he said.

If Canadian policy-makers want to respond to the resource boom, they should adjust the economy according to the root changes in the global economy in a holistic way rather than fuss over just one of its effects.

“We’re living in the Asian-driven scenario now,” said Carney. “That’s the way it’s going to be.”

The way it was

The new economic era begins where the American one ends, according to Carney.

America’s ability to lead global growth has waned and, with it, so have the commodity prices that were once considered normal.

Today, the world is one “where the United States is not as strong as it used to be,” said Carney. “It’s still the largest economy, it’s still growing. But it’s not as strong as it used to be and we don’t think it’s going to be as strong for foreseeable planning future because they need to work out their balance sheet issues.”

Rather, it’s “a world where Asia and major emerging markets are really driving growth.”

To underscore just how much Canada is structured into the U.S.-led growth era, Carney compares the different impacts of commodity price peaks on Canada.

“The U.S. demand-driven commodity price increase is almost three times as powerful in terms of overall impact on GDP – net impact of all those adjustments and other factors – than an Asian-driven commodity price increase,” he said.

“Different types of commodity cycles are better,” he later said. “A U.S. one is better than an Asian one.”

Some growth more commodity-intensive than others

But don’t let that fool you into thinking Asia-driven growth doesn’t boost commodity prices as much as U.S.-led growth.

Because what matters most in determining growth’s effects on commodity prices more globally is the kind of growth – whether it’s coming from a developed or developing economy.

Over the course of the last decade, China and other emerging economies have been lifting people out of poverty and into the middle class.

That kind of growth is more commodity-intensive because it means people eat more protein, live in bigger homes and begin to drive cars.

And when developed countries lead growth, the impact on commodity prices is minimal because, at a certain point, bigger paycheques don’t translate into eating more food or consuming that much more in material goods in terms of volume.

“We’re in an era where global growth is more commodity intensive for a period of time,” said Carney. “A given dollar of GDP in China is much more commodity intensive than a given dollar of GDP in the U.S. or more broadly in the advanced world.”

For the rest of this article, please go to the iPolitics.ca website: http://www.ipolitics.ca/2012/09/20/nature-of-global-growth-is-shifting-and-not-just-for-commodities-carney/