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Calgary — Mark Carney strode in front of the most powerful members of Canada’s energy industry with a message that was sure to please: the Bank of Canada has done the math, and oil companies are not setting the country on a course of economic destruction.
In short, he said, high oil prices aren’t hurting Canada. “In a world of elevated commodity prices, it is better to have them. Bank of Canada research shows that high commodity prices, regardless of the cause, are good for Canada,” he said.
Strong crude pricing does force a rise in the loonie, he said. But the overall impact is a net rise in “income, wealth and GDP in Canada.” While the higher dollar does harm non-commodity exports, that pain is “partially offset by the fact that a stronger currency reduces the cost of productivity-enhancing machinery and equipment imports,” he said at the annual Spruce Meadows Round Table just south of Calgary, which draws business leaders from across the world.
And, Mr. Carney added, any central bank efforts to ward off so-called Dutch disease – by tampering with Canada’s currency to protect manufacturers, for example – are likely to do more harm than good.
“The logic of Dutch Disease requires us to undo our successes in order to depreciate our currency,” he said. Taken to “its natural conclusion, this logic dictates that we shut down the oil sands, abandon our resource wealth, have high and variable inflation, run large fiscal deficits and diminish our financial sector.”
That would, he concluded, ultimately “weaken Canada.”
Mr. Carney’s comments, which he said were an effort to lay a proper factual groundwork rather than wade into an ongoing political debate, arose from a sophisticated analysis conducted by the Bank of Canada. It modelled the effects of a 20 per cent rise in energy prices in several scenarios, including one driven by U.S. growth, another driven by Asian growth and a third driven by other factors, like a geopolitical shock.
In all cases, he said, the economy gains. The most significant boost comes in the U.S. scenario, which produces a 3 per cent, or $57-billion, rise in GDP over five years, as U.S. economic strength boosts demand for a wide array of Canadian products. That scenario, however, is “fast becoming a historical artefact,” he said, as energy demand is increasingly driven by other parts of the world.
Yet even when oil prices are pressed higher by Asian demand, Canada sees a 1 per cent net GDP gain over a half-decade. The more muted boost is due to Canada’s weaker Pacific trade ties, which provide a diminished ability for the rest of the economy to benefit.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/economy/carney-says-canada-not-suffering-from-dutch-disease/article4526550/