THE WEST BLOCK
Interview with Mark Carney
Sunday April 21, 2013
Host: Tom Clark
Location: Ottawa
Tom Clark:
And joining me now, the Governor of the Bank of Canada, Mark Carney. Governor good to have you here again.
Mark Carney:
Great to be here Tom.
Tom Clark:
Your report this week and that of the IMF on growth basically says that Canada has gone from the front of the class to the opportunity class in terms of growth. What went wrong in the last year that the forecasts were off?
Mark Carney:
Well two things: first I think we should recognize that if you’ve grown a lot faster than everyone else, sooner or later your growth is going to moderate a bit relative to those who still have a lot of catching up to do, so that’s first thing. The second thing is, relative to where we thought we’d be this time last year; the biggest difference has been the performance of Canadian exports. They actually have swung quite bit. They’ve been much less strong across the board, whether it’s oil and gas, non-energy commodities or importantly, goods and services – manufacturing, effectively — the much weaker than we would have expected. We can talk about why that was the case but the other aspect has been a little on the margin. Business investment has been less robust than we would have expected at that time.
Tom Clark:
Two areas that I want to talk about. Let’s talk about first of all the exports. High Canadian dollar is that what’s killing us on the export market?
Mark Carney:
Well I mean there are a variety of factors. On the energy side, there are actually some shutdowns. There are some short-term factors that were important. We had a couple of Suncor plants were down. A couple of the offshore rigs, or platforms rather, off Newfoundland was down unexpectedly and so that actually just took a chunk of actual energy out of the export side. But when you get to the competitiveness side, look, the dollar’s been up for some time. It’s been persistently strong for a while as that phrase implies. What we haven’t had is the productivity growth that’s made up for the strength of the dollar and we’re seeing that in our performance in the United States. We’re not getting the market share we normally would have gotten in the past, given the growth in the United States and also we’re not penetrating yet, as much as we need to those new emerging markets.
Tom Clark:
You talked about business investment. This is something you’ve warned about in the past, the so-called corporate dead money that’s sitting on the side and not being put back into the economy. Are you saying that there has been very little improvement on that since you’ve been warning about it?
Mark Carney:
Well I think it’s a couple of things. One, the dead money comment was just an observation and if you have cash, as you’ve got a lot of cash, Tom. You probably notice it’s not making a very high return and part of the reason for monetary policy being so accommodative, so low, is to encourage people to put money to work, including corporations. And they haven’t invested as much of that as one might have expected but the reasons have changed and this is important. During 2012, particularly in the middle of 2012, there was a tremendous amount of uncertainty coming from abroad. Europe was plunging back into crisis. There were concerns about the fiscal cliff, acute concerns about the fiscal cliff in the United States; a big election coming up – a lot of uncertainty and so businesses were parking money, keeping money on the sideline, understandable. Now it’s more that uncertainty has diminished, those so-called tail risks have diminished, and now it’s more a question about where the global and Canadian economies are going. And normally what happens with business is, is they need to see demonstrated momentum before they really start investing. And this is a so-called investment accelerator.
Tom Clark:
It’s almost like a chicken and egg thing.
Mark Carney:
Well except that the chicken is coming. That’s what I’m here to tell you. We are seeing the global economy within growth has picked up. The IMF sees growth picking up a bit from where it was the middle of last year. The US economy has done a lot of repair. The headline numbers won’t be as strong because they’re doing a big fiscal adjustment but the US private sector has picked up significantly over the course of the last couple of years. The US housing market is fully recovering and so we’re seeing a lot of momentum there. Domestically, we think it’ll take a couple of more quarters before the domestic momentum picks up and then we’ll see business investment move. Last point, if I may, the key thing for Canadian businesses to recognize is that we still have the most resilient financial system in the world and so with interest rates at record lows, they can get money and they can get money at very attractive rates. So when they have a project that makes sense they can rely on this financial system.
Tom Clark:
You know a lot of people in an interview with the Governor of the Bank of Canada want one question and that is that you have consistently said in the past, careful about your debt levels because interest rates are going to be going up. But with the projection that we’re going actually into a bit of a downturn at least for the next couple of quarters, are you saying…is it inherent in what you’re saying that interest rates are going to stay down for 2013 before they start going up?
Mark Carney:
Two things: first, the next couple of quarters – growth was weak in the fourth quarter of last year and it picks up from there, so 1.5 per cent, we think first quarter, then 1.8 per cent, then above 2 per cent and averaging 2.5 per cent for the latter half of the 2013. So it is kind of picking up, slowly, surely from here right now. Secondly, in terms of the period over which we expect interest rates to remain at this level, we haven’t spelled that out explicitly. What we have spelled out are the factors that are going to influence how long that period is. First, the economy needs to growth above its so-called potential rate of growth. So it needs to grow more than 2 percentage points. Secondly, you need to see a continuation of what is becoming a positive evolution of household debt and aspects of the housing market. They’re both moving; moving in the right direction towards more sustainable levels. So we need to see those aspects and also inflation picking up a little bit before we would move.
Tom Clark:
Can you take all this and bring it down to main street what this means for the average Canadian what they can expect in terms of availability of jobs, in terms of as you said the housing market and so on?
Mark Carney:
Well, what we would expect is that, I mean, the Canadian labour market has performed pretty well – very well compared to other major economies — but it performed pretty well. We’re in a bit of a soft patch right now; we would see that picking up in the latter half of this year. There are a lot more Canadians who want to work and those Canadians who are working want to work more hours. You probably don’t but others want to work more hours.
Tom Clark:
Well you’re about to work a whole lot more hours. We’ll get to that in a minute but…
Mark Carney:
In terms of prices, inflation: low, stable, predictable. So they don’t have to worry about inflation. And in terms of access to credit, if a Canadian watching is thinking of expanding their business, setting up a business, getting access to credit, times are about as good as they can be and the only thing we’re saying with the glass half empty is if you’re taking out a longer term consumer loan or a mortgage, just remember that we’re in exceptional circumstances and rates over time will rise. And in fact, the next move will likely be a move up in Canada after we start to establish those conditions for sustainable growth.
Tom Clark:
With the economy in change, as it is right now, one of the things that people have been talking a lot about is financial literacy. The ability for the average person to understand how the economy is going so that they can understand things like when is the best time to get a low interest rate and so on. Are we doing a good enough job in this country on financial literacy?
Mark Carney:
Well I think two things: first, we’ve been impressed by how Canadians have responded to the heightened profile of the household debt issue and the media has helped with that, the minister of finance has been very clear about the issues, the banks have helped as well. And what you’ve seen is that the rate of growth has gone from 10-11 percentage points a little more than a year ago to about 3 percentage points. That’s the annual growth. So it’s come down quite sharply, that’s good. Also, Canadians have moved from having more than 60 per cent of their mortgages variable rate to 10 per cent variable rate. So they’ve also moved to fixed-rate mortgages. Again, a very smart – I’m not giving investment advice or borrowing advice but a sign of strong financial literacy. So it’s pretty good. But it can really improve, as it can in many other places and I think we’re encouraged by the efforts of the Financial Consumer Agency of Canada which is a big new financial literacy program and the government which actually this week has announced some new measure to encourage financial literacy amongst students, and this is really the best place to start.
Tom Clark:
I want to talk about you walking off the Canadian stage and onto the next assignment but before I do that, as you leave this country, is there one thing or can you point to one thing that this country should keep its eye on for the next generation that is going to be vital to the future of this country?
Mark Carney:
One thing…I think in the end it comes down to skills. We are obviously tremendously blessed with natural resources, other advantages, but seven with natural resources, the global race, if you will, global competition, global opportunity for the country, it’s all about skills and it’s skills across the board for all Canadians and all Canadian residents.
Tom Clark:
So that’s not only increasing skills here but being open to bringing in skilled workers from around the world?
Mark Carney:
One starts very much with the first. And with the second, is the recent debate has been, is that very much in the spirit of what the government has said is that’s a transition; those are transitory measures. You’re bringing in high-skilled workers to transition to high-skilled Canadian residents to fill those jobs.
Tom Clark:
Let’s move on briefly to your next job, Governor of the Bank of England. You’ve talked a lot in this current job about how so much of our future depends on what happens in Europe. Within a very short period of time you’re going to have an awful lot to do with what happens in Europe. When you take a look at the European situation, are you optimistic, pessimistic? Where are you?
Mark Carney:
Well, I think I’d leave glass half full which…and I’m headed off to the G20 tomorrow morning where we’ll be talking with European colleagues. The sense of realism in Europe has changed dramatically over the course of the last couple years of what needs to be done; the scale of the task in order to make monetary union work and it is a formidable task for European officials and countries ultimately to come to grips with. So they have to do a lot on the structural side in reforming the financial system and fixing their finances and fixing their banks over a number of years. So I can be realistically optimistic that they recognize the scale of the problem. They certainly have the political will to address that and it’s going to come down to execution and yes, I will be closer to that in the new role.
Tom Clark:
One of the hallmarks of your time as Governor of the Bank of Canada has been your accessibility. I can’t remember any other bank governor who has been so open in terms of communicating with the public about the issues of the day than you have been. Two questions on that: should your successor, whoever that may be, follow in those footsteps about open communication? And secondly, are you going to bring that style to England?
Mark Carney:
Well, I think to some extent the extra accessibility was a product of the times in that we had a financial crisis almost immediately when I showed up. I didn’t cause it. I want to make that clear, but we had one. And you know, you over communicate in those situations. People need to know, know what you know, what you don’t know, and that’s important. That said, yes transparency, we need to be more transparent at central banks. We have a lot of responsibility. We need to try to explain ourselves, what we’re doing so that the man and the woman on the street understand it and they can get on with their lives. So my successor, whoever he or she is, will, I would suspect would follow in that tradition in their own style. Different people have different styles but the intent would be the same. In the UK, there is a tremendous focus on the accountability of the Bank of England. It has tremendous powers and there are a variety of mechanisms to ensure that it’s accountable to Parliament, accountable to Britains and uses both parliamentary appearance, speeches, media, all avenues, not just for the governor though, but for all members of the various committees that make the decisions. So I think by definition – and you know the British press takes some interest in these issues – by definition, there will be ample opportunity to communicate, yes.
Tom Clark:
Are you prepared for the British press? I mean you’re going to be one of the three or four most important people in England for the next five years over there. Are you prepared for that?
Mark Carney:
Well, a couple of things, one: the institution is tremendously important. I think it gets over played how important the governor is. The core decisions of the Bank of England are made by monetary policy committee for monetary policy, financial policy committee for macro-credential issues. There’s a regulatory committee, all of which the governor chairs but, you know, is not a dictator. These are committees that make decisions. So the institution is powerful, much more powerful than the individual. In terms of part…yeah obviously I wouldn’t have taken the job if I didn’t think I could contribute to that institution and help the British economy get back to full employment and sustainable growth.
Tom Clark:
I’m just thinking of the British tabloids and how they’re rather invasive of one’s personal life and so on. I mean you’ve had a lot of exposure here; it’s a different neighbourhood over there for you.
Mark Carney:
Well look, in the end, these are incredibly important issues for that economy. Central banks rely, not exclusively, but very much do rely on the press to convey their messages to citizens and one has to work with the press to make sure that those messages get across, not just to all strata of society, all regions of the country. So you work with what you get.
Tom Clark:
Just got a final question for you, you’ve steered this country through some of its darkest financial times. You’re about to go over the England to try and rescue the European economy and turn that around. What do you do for an encore after that?
Mark Carney:
Try and take your seat.
Tom Clark:
There are days when I’d give it to you.
Mark Carney:
Exactly.
Tom Clark:
I think it’s safe to say, because this is the last time you’ll be appearing on this show as the Governor of the Bank of Canada, I think it’s safe to say governor that on behalf of all Canadians, we thank you for the extraordinary public service that you’ve rendered this country for the past number of years. Thank you very much.
Mark Carney:
Very kind, thank you Tom.
Mark Carney:
Good seeing you again.
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