Stephen Poloz exuded a new confidence last week in his debut appearance as governor of the Bank of Canada before the Commons finance committee in Ottawa. Mr. Poloz became Canada's central bank chief on June 3, replacing Mark Carney who left to take over the running of the Bank of England.
Mr. Carney's discussions of economic conditions used to reflect the difficult times through which he had led the bank. Mr. Poloz recognized the damage suffered by Canadian industry and employment following the 2008 near-collapse of the U.S. banking system but he also described the stages by which Canada is already recovering.
"Just as the financial crisis triggered an atypical recession, the recovery cycle is unusual," Mr. Poloz said. "The rotation of demand will require more than just the ramping up of production. The sequence we can anticipate is the following: foreign demand will recover; our exports will strengthen further; confidence will improve; companies will invest to increase capacity; existing companies will expand and new ones will be created. In short, we need to see the reconstruction of Canada's economic potential, and a return to self-sustaining, self-generating growth. This sequence may already be underway."
Indeed it may. The following day, Canadian and U.S. statistical agencies produced their monthly employment reports for May. The U.S. report showed that total employment increased by 175,000 from April to May and the unemployment rate remained essentially unchanged at 7.6 per cent. From a high of 10 per cent in October 2009, the U.S. unemployment rate has declined by fits and starts to its present level. In Canada, employment rose by 95,000 in May and the unemployment rate dropped slightly to 7.1 per cent. Canada's unemployment rate has been declining little by little from its October 2009 peak of 8.7 per cent.
Economists have been struck by the slow pace of economic recovery and employment growth in Canada and the U.S. But as Mr. Poloz pointed out, this recession was different from earlier ones and the recovery is also different. For one thing Brazil, Russia, India and China -- along with a great many lesser emerging economies -- now produce many of the goods once produced in North America.
Europe, meanwhile, has not yet started into the upward phase of its economic cycle. In the 17 countries that use the euro common currency, the unemployment rate rose to 12.2 per cent in April from 12.1 per cent the month before -- the 24th successive month of increase. For the 27 countries that make up the European Union, the unemployment rate remained steady at 11 per cent.
In this context, Canada and the U.S. are doing pretty well. Business cycles being what they are, the expansion that began about October 2009 is now 3 1/2 years old. It may continue for many more years, but there is no assurance that it will. It is not written anywhere that Canadian and U.S. employment will return to the levels that were once thought normal before China made our microchips and India programmed our computers.
For Europe, the policy of austerity and debt-reduction has left the poorest countries in an extremely weak position so unemployed people see no hope of recovery. Hope has fled. For Canada and the U.S., by contrast, there is every reason to hope conditions will continue to improve. Mr. Poloz has given a simple account of how that may happen and may already be happening. Beyond the expansion he describes, the next recession is already in preparation. Economic expansions do not go on forever. Finance Minister Jim Flaherty, Premier Greg Selinger and the other managers of public spending and debt in Canada should use these years of expansion to pare down spending and prepare for the next phase of the cycle.