–Senior Deputy Govenor Stress U.S./China Need For Reforms

By Courtney Tower

OTTAWA (MNI) – The Bank of Canada Monday joined the ranks of those
in America who call on the United States to export more and import less,
although Canada depends overwhelmingly on sales south of the border.

Senior Deputy Governor Paul Jenkins laid heavy importance for world
recovery from recession on the United States, and China, reforming their
policies and practices — one to reduce debt and the other to reduce
savings. The alternative will be world economic growth “neither as
strong, nor as sustained, as it could be,” he told the Economic Club of
Canada in a Toronto speech.

In the midst of powerful trends that are reshaping the world
economy, as emerging nations move to total dominance in world output (up
to about 55% of total output by 2020), Jenkins said, “Americans need to
save more and rebuild household sector wealth.”

“In the future, more U.S. economic growth must come from net
exports — a combination of higher exports and lower imports,” he said.

Jenkins was speaking in the financial capital city of Canada — and
in the city and province where much of the country’s export activity is
centered. In Canada’s central bank calling for lower U.S. net imports,
there is the irony that Canada, a trade-dependent nation, sends more
than 75% of its exports to the United States.

Jenkins repeated traditional arguments by Western countries that
“China, on the other hand, will need to rely more on domestic demand as
the engine of growth.”

What central bankers calls “rotation of demand” is needed to
correct the huge imbalances between U.S. debt and Asian savings by
purchases of U.S. debt, that were a big part in causing the world
financial crisis, Jenkins said. “Without this rotation of demand, global
economic growth will be neither as strong, nor as sustained, as it could
be,” he said.

The dominance of today’s major industrialized nations in economic
output is lessening, Jenkins noted, as “powerful economic forces are
changing the economic landscape.”

Over the next five to 10 years, he estimated, major industrial
economies are expected to grow their potential output (sustainable
growth without inflationary or deflationary consequences) by just 2% or
2.5%, he said. For emerging market economies “the rate is estimated at
between five and eight percent.”

Given this divergent rate of growth between established and
emerging economies, Jenkins said “major emerging market economies will
likely account for over 55 percent of global output by 2020, compared
with about 45 percent today.”

Emerging-market countries, the strongest-growing regions in the
world presently and best at dealing with the financial crisis, now
should have the confidence to institute greater exchange rate
flexibility in order to strengthen international trading and financing,
he said.

** Market News International Ottawa **

[TOPICS: M$U$$$,MGU$$$,MFU$$$,M$C$$$,MI$$$$]