Bank of Canada Senior Deputy Governor Carolyn Wilkins said exports of commodities to China should keep rising even as growth slows in the world’s second-largest economy.
China’s growth rate may decelerate to an average of about 6 percent over the next 15 years from almost 7 percent last year, Wilkins said, citing new research from Canada’s central bank. That remains fast enough for China’s gross domestic product to double in less than 12 years, she said, adding that more sustainable growth in China is “desirable” and “inevitable.”
“China’s demand for commodities should remain high and grow from a higher base, even if the country’s economic growth is slower and less reliant on natural resources,” Wilkins said in the text of a speech she is giving Tuesday in Vancouver.
Canada’s economy has been hurt by falling energy and metal prices linked in part to China’s slowdown. Crude oil has fallen to about $36 a barrel from more than $100 in mid-2014, prompting Governor Stephen Poloz to cut rates in January and July of last year as the economy headed to the brink of its second recession since 2009.
Wilkins didn’t offer an outlook for the policy rate in her remarks, the last by a member of the Ottawa-based central bank’s governing council before the April 13 interest rate decision. The central bank’s benchmark rate is currently 0.5 percent.
“Canada isn’t immune to the risks that China’s transition poses to the global economy,” Wilkins said. “It is nonetheless well positioned to manage them.”
Canada’s output would be 0.1 percentage point lower if China’s growth rate missed projections by 1 point, Wilkins said. In its January Monetary Policy Report, the Bank of Canada estimated China would expand by 6.9 percent in 2015 and 6.4 percent this year.
Slower Chinese growth would hurt Canada through lower commodity prices and reduced trade, while Canada’s banks have little direct exposure to China, she said.
China’s government set out a 2016 growth target range of
6.5 percent to 7 percent, with 6.5 percent pegged as the baseline through 2020. That would be less than last year’s 6.9 percent rate, the slowest in a quarter century. That comes even with the government devaluing its currency, permitting a record high deficit and raising its money supply expansion target.
Chinese officials should consider policies to create a social safety net to shift the economy to consumer spending from high levels of investment, she said.
Officials must also manage a policy “trilemma,” the senior deputy governor said, referring to the problem of trying to simultaneously maintain a fixed exchange rate, independent monetary policy and free international capital flows.
Canada has some similar history, having moved through its own phases of keeping a fixed and then a floating exchange rate, she said. Today’s Canadian policies of a floating dollar and a 2 percent inflation target have helped Canada deal with swings in export prices, Wilkins said.
“Lower prices for oil and other commodities mean that Canada is going through its own complex adjustment,” she said.