OTTAWA - The world economy is slowing sharply and will continue to impact Canada's beleaguered manufacturing and forestry sectors, the Bank of Canada says.
But senior deputy government Paul Jenkins adds that after five years of robust global growth, the marked slowdown was necessary to keep inflation from taking hold.
"It's important to note that some slowing in global economic growth was necessary,'' he told a business audience in London, Ont. on Wednesday morning.
"After five or six years of nearly unprecedented growth, levels of economic activity around the globe were straining capacity limits and beginning to put upward pressure on inflation.''
For Canada, Jenkins said inflation is well under control and that the country's key challenges are tight credit markets and weakness in the U.S. impacting on economic growth, particularly in the manufacturing sector.
And he reiterated that the central bank still believes it will need to cut interest rates further to stimulate the economy. The next scheduled rate announcement is April 22.
Jenkins said the sustained period of global growth has been mostly good news for the overall economy in Canada, explaining that the strong commodity prices "are generating a substantial boost to incomes in Canada.''
But now Canada's manufacturing and forestry sectors are facing pressure from a variety of sides, including the strong loonie, weak U.S. demand and increased competition from developing economies such as China and India.
For Ontario, Jenkins said the gathering forces means that the province will have to adjust to the new reality that manufacturing will play a lesser role in the economy.
He pointed to the example of London, where 20 years ago manufacturing accounted for 20 per cent of employment, but now has shrunk to 14 per cent.
"This decline has been more than offset over the past 20 years by employment gains in financial, business, and professional services, and in transportation and warehousing,'' he said.
"The result for London over this period has been rising employment and rising real incomes.''
While the end result looks rosy, Jenkins noted that the period of adjustment is not easy.
