OTTAWA—Bank of Canada Governor Mark Carney is sticking by his criticism of corporate Canada, saying the disappointing pace of investment by business is a risk to the economy.
Asked about an earlier remark in which he accused businesses of sitting on huge piles of “dead money,” Carney told Members of Parliament Tuesday he “absolutely” stands by that statement.
Investment by Canadian companies in new machinery and equipment — considered vital to boosting growth, creating jobs and making the economy perform more efficiently — has “disappointed” in the second half of 2012, he told the Commons finance committee.
He said the slower-than-expected pace of investment by business last year reflected uncertainty about the global economic outlook and engineering problems in the energy sector.
Carney, who is leaving Ottawa to take over the Bank of England this summer, added that business spending since the recession has been about average when compared to previous trends.
But he said Canada needs companies to spend more on machinery and equipment because “we’re not in average circumstances.” Canada’s economy is experiencing a long-term lack of efficiency, or productivity, that is holding back growth, Carney pointed out. Also, investment is crucial at a time when Canada needs to diversify its exports away from the United States into new markets and the high value of the loonie on exchange markets is making it more difficult to export.
Unless this trend improves, the economy could fall short of the central bank’s forecast, which calls for growth of 2 per cent this year and 2.7 per cent next year. “What matters really for our forecast is that we are going to see a pickup in business investment,” he told MPs. He said Canada also needs to see an upsurge in exports if the economy is to perform as he has predicted.
But Carney said the bank does expect to see an increase in business investment in coming months. His remark last year about corporate Canada hoarding hundreds of billions of dollars in “dead money” touched a nerve with the business community, which insisted his analysis was misleading and that it was wise for companies to be cautious at a time of world economic uncertainty.
Carney is leaving the Bank of Canada before his term is up to take over the Bank of England. But he was careful to suggest to MPs that he is not rushing out of Ottawa. He said he hopes to appear before the Commons finance committee again in April after the bank’s next quarterly forecast.
He also told the committee that Canada’s employment rate — the portion of those employed among the working age population — is down a bit since the recession. He said it is currently about 62 per cent, compared to 64 per cent before the downturn that began in 2008.
But he said Canada’s job performance is better than that seen in the United States. And he noted that the decline in the Canadian employment rate is not entirely due to the recession. It also reflects the long-term aging of the population.
He said Canadians appear to be heeding his warnings about running up too much household debt at a time when interest rates are at a historic low. “So it’s a reasonable prospect that this year and in the coming quarters, actually, we will see a stabilization of the household debt ratio.”
Carney also said conditions in the American economy are looking better despite the unknowns arising from the budget standoff in the U.S. Congress. “The quality of U.S. growth is better, because what’s supporting U.S. growth right now is better quality activity in the household sector, in the housing market, the start on corporate investments. The sustainability of the position is better and so over the medium term, this augurs well for Canada,” he told MPs.
Original Article
Source: thestar.com
Author: Les Whittington
Asked about an earlier remark in which he accused businesses of sitting on huge piles of “dead money,” Carney told Members of Parliament Tuesday he “absolutely” stands by that statement.
Investment by Canadian companies in new machinery and equipment — considered vital to boosting growth, creating jobs and making the economy perform more efficiently — has “disappointed” in the second half of 2012, he told the Commons finance committee.
He said the slower-than-expected pace of investment by business last year reflected uncertainty about the global economic outlook and engineering problems in the energy sector.
Carney, who is leaving Ottawa to take over the Bank of England this summer, added that business spending since the recession has been about average when compared to previous trends.
But he said Canada needs companies to spend more on machinery and equipment because “we’re not in average circumstances.” Canada’s economy is experiencing a long-term lack of efficiency, or productivity, that is holding back growth, Carney pointed out. Also, investment is crucial at a time when Canada needs to diversify its exports away from the United States into new markets and the high value of the loonie on exchange markets is making it more difficult to export.
Unless this trend improves, the economy could fall short of the central bank’s forecast, which calls for growth of 2 per cent this year and 2.7 per cent next year. “What matters really for our forecast is that we are going to see a pickup in business investment,” he told MPs. He said Canada also needs to see an upsurge in exports if the economy is to perform as he has predicted.
But Carney said the bank does expect to see an increase in business investment in coming months. His remark last year about corporate Canada hoarding hundreds of billions of dollars in “dead money” touched a nerve with the business community, which insisted his analysis was misleading and that it was wise for companies to be cautious at a time of world economic uncertainty.
Carney is leaving the Bank of Canada before his term is up to take over the Bank of England. But he was careful to suggest to MPs that he is not rushing out of Ottawa. He said he hopes to appear before the Commons finance committee again in April after the bank’s next quarterly forecast.
He also told the committee that Canada’s employment rate — the portion of those employed among the working age population — is down a bit since the recession. He said it is currently about 62 per cent, compared to 64 per cent before the downturn that began in 2008.
But he said Canada’s job performance is better than that seen in the United States. And he noted that the decline in the Canadian employment rate is not entirely due to the recession. It also reflects the long-term aging of the population.
He said Canadians appear to be heeding his warnings about running up too much household debt at a time when interest rates are at a historic low. “So it’s a reasonable prospect that this year and in the coming quarters, actually, we will see a stabilization of the household debt ratio.”
Carney also said conditions in the American economy are looking better despite the unknowns arising from the budget standoff in the U.S. Congress. “The quality of U.S. growth is better, because what’s supporting U.S. growth right now is better quality activity in the household sector, in the housing market, the start on corporate investments. The sustainability of the position is better and so over the medium term, this augurs well for Canada,” he told MPs.
Original Article
Source: thestar.com
Author: Les Whittington
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