Province to feel pain of China’s slowdown
Commodities exports are issue: Bank of Canada
Canada, and B.C. in particular, may be impacted by China’s economic slowdown in the coming years, but the actual fallout will be much less than the psychological effect on investors, a senior Bank of Canada official told a Vancouver gathering on Tuesday.
Senior deputy governor Carolyn Wilkins said that a study released by the Bank of Canada this week suggests that a one-percentagepoint drop in the Chinese GDP growth rate would only lower Canadian GDP by 0.1 percentage point.
But Wilkins noted that B.C., because of its growing economic ties with China, could see more of a hit. Trade figures show the Chinese market makes up about one-third of B.C.’s forestry products business, up dramatically from just four per cent in 2001. Any Chinese slowdown would impact demand for such commodities, although Wilkins noted that China’s GDP could still grow at a sustainable rate of six per cent annually over the next 15 years, meaning trade volumes will continue to be high.
Other B.C. sectors that may be hit by a Chinese slowdown include coal and copper mining.
“Certainly, the impact across Canada wouldn’t be even,” Wilkins said. “B.C. would be impacted in a couple of channels more particular to B.C. With regards to lumber, I think even now, we’re seeing a shifting back to the U.S. because the U.S. economy is picking up.”
Wilkins also noted that Canada’s financial institutions will not suffer from any fluctuations in the Chinese currency, although the psychological impact of China’s recent currency and stock market instability cannot be known.
“Uncertainty about China’s prospects has had a surprisingly large effect on investor confidence in recent months,” Wilkins said. “Clearly, we’ve seen an increased reaction to global asset prices, particularly equities, to economic news coming out of China. I don’t know if that’s actually emotional, or just an understanding of how big the Chinese economy is, and how important the effect of the Chinese economy is for global trade and commodity prices. Given that prices relate directly to the profitability of firms, that is understandable.”
Canadians should anticipate new opportunities in trade with China, such as in the value-added financial services sector, as that country becomes more of a consumer-driven economy, she said.
“The main message for Vancouverites would be that they are going to hear a lot about China slowing, yet they need to realize it’s a completely natural thing for the Chinese economy to do, given the stage of its development,” she said.
“At the same time, these type of transitions involve risks ... but Canada may be buffeted from those risks if they do materialize.”
Uncertainty about China’s prospects has had a surprisingly large effect on investor confidence in recent months.