WASHINGTON (Reuters) - Bank of Canada Governor Mark Carney said on Friday that a robust Canadian dollar has sapped a lot of the country’s manufacturing competitiveness by raising costs of its exports in foreign markets.
“Certainly our competitiveness in manufacturing has gone down a tremendous amount, not just versus the United States where there has been a sharp rebound ... but also vis-a-vis third countries as well,” Carney said on CNBC television during an interview from Helsinki, Finland.
Carney said that the Canadian dollar’s strength posed “a downside risk to growth and inflation in Canada” and said the country was already being hit by supply-chain disruptions caused by the March 11 Japan earthquake.
“Growth has been slowed quite markedly in the second quarter,” Carney said. “We think the underlying track is around 2 to 2.5 percent (growth) through the balance of the year, but there could be a lot of noise around that because we’re going to have to face the auto plant shutdowns (that) we’re having already.”
Canada’s commodity-based economy has benefited from strong demand for oil and other key materials and has been a top performer among developed countries. The Canadian dollar jumped again on Friday to C$0.9573 versus the U.S. dollar, or $1.0446, after reports of strong April jobs growth in both countries.
Carney said the Canadian financial system was “firing on all cylinders” and was a source of strength for the Canadian economy because there were no credit constraints on businesses seeking to borrow for expansion.
The more closely regulated Canadian financial system did not suffer anything near the degree of trauma that the U.S. banking system went through during the 2007-2009 financial crisis.
Carney, who was en route to a Bank for International Settlements meeting in Switzerland, was asked if he expected to see some form of a transaction tax imposed on key global banks.
“There will be a surcharge on the globally systemic important financial institutions,” Carney said. “We’re moving forward. This weekend is not the weekend to finalize that agreement, but we’re on track for the timetable of the G20 (meeting), which will be in October.”
Reporting by Glenn Somerville; Editing by Padraic Cassidy