paul jenkins : beyond recovery – sustaining economic growth remarks by mr paul jenkins, senior deputy governor of the bank of canada, to the economic club of canada, toronto, 29 march 2010. * * * good afternoon. it is a pleasure to be here. john maynard keynes said the objective of “ analysis is … to provide ourselves with an organized and orderly method of thinking out particular problems. … this is the nature of economic thinking. ” 1 this is very much the tradition of the economic club of canada, which offers an important forum for analysis and discussion of economic issues, certainly those we have had to address since the onset of the global financial crisis. the bank of canada has offered its analysis and perspective on these issues, especially global and domestic developments, the policy actions needed to address the situation, and how best to position the canadian economy to the benefit of all canadians over the medium - to - longer term. in the wake of the global financial crisis and the “ great recession ”, economic recovery is under way, supported by exceptional monetary and fiscal stimulus. in many countries, however, large output gaps remain and, given the need to repair the balance sheets of households and financial institutions in these countries, the return to full resource utilization will be protracted. what i ’ d like to discuss today is the economic environment beyond recovery. i ’ ll set the stage by discussing, in general terms, the kind of global economic landscape we ’ re likely to see five to ten years ahead. then i ’ ll look at several important areas of public policy that will help to shape that outcome and promote sustained economic growth. finally, i ’ ll focus on some of the challenges and opportunities that a significantly different global economic landscape will pose for canadian business. a changing global economic landscape the global economic landscape will change considerably over the coming decade. to get a sense of what it may look like, it ’ s useful to consider both the developments that are required for global economic growth to be sustained, and the likely impact of the powerful trends that have been shaping, and will continue to shape, the world economy. it is clear that, as a nation, americans need to save more and rebuild household sector wealth. for too long, the u. s. economy has been consuming more than it has been producing. this means that, in the future, more u. s. economic growth must come from net exports – a combination of higher exports and lower imports. consumer demand will be a relatively less important source of growth

the question is : are you making full use of what that technology can do for you? are you integrating that investment to full benefit in terms of organizational practices and producing end products? we ask ourselves these questions at the bank of canada, whether they relate to investments in our analytic computing capability or the handling of bank notes. they are the right questions to ask. with our trading partners, including the united states, continuing to invest and make strong gains in productivity growth, it is all the more imperative that firms in canada make concerted efforts to boost productivity. and from one perspective, they are well equipped to do so. one possible explanation for this poor productivity performance lies in the shifts in capital and labour that have occurred in canada in recent years as a result of changes in relative prices, notably, during periods of commodity - price shocks and periods of structural adjustment. for further details on canada ’ s productivity challenge, see m. carney, “ the virtue of productivity in a wicked world ”, remarks delivered to the ottawa economics association, ottawa, 24 march 2010 ; and t. lane, “ the canadian economy beyond the recession ”, remarks delivered to the canadian association for business economics, kingston, ontario, 25 august 2009. corporate balance sheets in canada are healthy. profitability is good, with the ratio of profits to gdp back to its long - term average of 10 per cent. leverage – i. e., debt - to - equity – ratios are low and liquidity levels are high. corporate tax rates have declined. absolute borrowing costs are low. and while the non - price terms for borrowing have been a restraining factor, our senior loan officer survey indicates that these terms are beginning to ease as the recovery takes hold. from this perspective, then, there should be little holding corporations back from modernizing their capital stock. but there ’ s an additional perspective, and that is the extent to which firms can access funds for making productivity - enhancing investments. the role of the financial sector is to channel savings to the real economy. given the importance of small and medium - sized enterprises in canada, it is critical that this sector invest in productivity - enhancing improvements. compared with similar - sized firms in the united states, these canadian firms rely more on individuals for financing and less on financial institutions. 6 this, to me, suggests a market opportunity for our financial institutions. as well, additional sources of higher - risk capital are needed for canada to be successful in modernizing the economy ’ s productive capacity