mark carney : uncertainty and the global recovery remarks by mr mark carney, governor of the bank of canada and chairman of the financial stability board, to the vancouver island economic alliance, nanaimo, british columbia, 15 october 2012. * * * introduction it is a pleasure to be in nanaimo at the vancouver island economic summit. with british columbia serving as canada ’ s gateway to asia, you are well aware of the interconnectedness of the global economy. to the benefit of billions of people, goods, capital and ideas flow across borders as never before. unfortunately, so too does angst. this is my topic today. while the “ great recession ” is over, what has followed is an unfamiliar process of repairing public and private balance sheets across advanced economies. the depth and duration of this deleveraging are unclear. deleveraging is holding back the global recovery and laying bare distinct challenges in different parts of the world. the euro area is stagnating as it struggles with an underlying balance - of - payments crisis. the united states is at the edge of a fiscal cliff. china and other emerging markets are trying to sustain rapid growth amid weak demand in their traditional export markets. there is a synchronous slowdown under way in the global economy. this past weekend in tokyo, when the international monetary fund ( imf ) marked down its growth forecast, no region or major economy was spared. further, the imf warned that downside risks have risen. 1 against this background, it is not surprising that uncertainty over the global economic outlook is high. it is being reinforced by concerns over how policy - makers will address these challenges. this combined uncertainty is further complicating the recovery, prompting firms and consumers to retrench. there is some evidence of this dynamic here in canada as businesses feel the weight of darkening global prospects. while i will not be able to dispel all of these concerns today, my objective is to explain how policy - makers are addressing some uncertainties and to put some others in their proper context. uncertainty and its impact it is only human to respond to uncertainty with caution. faced with a highly volatile environment, households shy away from spending on big - ticket items such as houses or cars, and firms put off making large capital investments and hiring new workers. the effect on business investment can be particularly significant. this is because uncertainty increases the value of waiting for new information when firms decide whether to undertake big projects, leading them to reduce

a 7 per cent share of global economic activity as recently as 2000 ( measured at market prices ) to an estimated share of close to 18 per cent as of 2013. measured in terms of purchasing power parity, the latest number would be even more impressive. the process has had some occasional set - backs, of course, and is not without precedent – i am thinking here of the late 19th and early 20th centuries and the emergence of the united kingdom and the united states. but such growth is nevertheless extraordinary. emerging asia has accounted for more than 40 per cent of the world ’ s growth over the past 10 years, and hundreds of millions of people have been lifted out of extreme poverty. like most episodes of successful development in the post - war period, the asian miracle has been driven by export - led growth. in many cases this was supported by a fixed exchange rate regime, and an extensive system of currency and capital controls designed to achieve and preserve international competitiveness. of course, there has been considerable variation across countries with regard to their economic circumstances, institutional arrangements and development strategies. the simple picture painted above does not apply to all. nor are asian countries the only ones in the global economy to enjoy sustained external surpluses. more importantly, for every trade surplus, there must be an equal and offsetting deficit, with many advanced countries eager in the past to play this role. bis central bankers ’ speeches such imbalances are not unusual, but the extent to which capital was “ flowing uphill ” during the pre - crisis period was. this was clearly unsustainable. it is one thing for relatively small countries to play this game, but when they grow too large, they soon run out of space. foreign reserve accumulation among the emes since 2000 has totalled more than us $ 6 trillion ( chart 3 ). chart 3 the asian miracle has generated large surpluses and large reserve accumulations the crisis as a catalyst for change when the crisis hit, export markets for the emerging asian economies suddenly imploded. fortunately, many of them had the fiscal and monetary policy space to cushion the blow. however, the crisis merely brought forward a process of global rebalancing that was inevitable. advanced economies had exhausted their credit lines, and emes were running out of foreign customers. advanced economies were going to have to boost domestic savings to get out of hock, and emes were going to have to rely on their own consumers for future growth. the coordinated and ambitious economic recovery