Thank you, Mr. Chair, for the invitation to speak today.
I'd like to echo the theme of uncertainty, and also the volatility that we think will continue in both foreign exchange rates and financial markets. We had such a strong initial rebound for Canada that this slowdown is only beginning to be appreciated. In fact, what we're looking for, after 3% real growth this year, is somewhere around 2.25% next year, with the U.S. being about a 0.25% below Canada's growth. It means that in terms of nominal GDP growth we may in fact be hard-pressed to reach 4% to 4.5%, and far less likely to reach 5%.
Canada, as a small economy, has a number of strengths, and I would point to our resource wealth and the strength of our corporate sector balance sheets, which is substantially stronger than in prior repair periods. But we also have significant adjustments, particularly in central Canada, and of course in Ontario, where we have seen industries, such as forest products and the motor vehicles sector, permanently downsized. So there is restructuring going on that we have to do in a world that's now dominated by growth that's fuelled by the emerging economies.
In terms of the U.S., I completely endorse the views of my colleagues. This is an economy that is under substantial duress. We are quite uncertain about the outcome of the second quantitative easing, not only in terms of the boost that it may or may not provide to real growth and job creation, but also in terms of the U.S. dollar and, eventually, the mid-term path for inflation. Our concern there as well is that the longer you delay a comprehensive fiscal repair plan, the steeper the fiscal correction will eventually be.
I think the shadow of protectionism, be it competitive currency devaluation or other means, will be hanging over us for a number of years going forward. At the same time, there is a race right now to sign advantageous bilateral trade deals so that our whole global trade framework is in the process of shifting.
Finally, Canada really benefited not only from our own domestic stimulus, but from the synchronized monetary and fiscal stimulus around the world. We're now facing a period of several years in which you have nations with different recovery paths in terms of pace and type, and you also have a simultaneous withdrawal of the fiscal stimulus and fiscal repair. We haven't had the type of fiscal repair among the developed nations on that scale simultaneously, so there is considerable uncertainty about how those interact with each other and play out.
On the domestic front, we quite strongly believe--because of our belief that the U.S. dollar will continue to soften--that the Canadian dollar will move sustainably to parity by the second half of 2011, and probably trade through parity as we look to 2012 and 2013. Our industry has learned to cope with a 95ยข U.S. dollar, but they haven't learned to cope with a dollar that might be at $1.05.
The volume of our exports in the second quarter of 2010 was about 86% of the prior peak in the second quarter of 2007. Our imports, by the way, were 99% at that peak.
We also have a concern about Canadian households having to slow their credit growth and their spending. When you look at one metric, the debt-to-income, it's at record levels. It's actually now approaching the level in the U.S., which has come down. And Canadians, because of a series of unexpected circumstances as we came out of the recession, had every incentive to borrow. If we're right, that means we face a cooler housing market and also a much more cautious Canadian consumer as provinces and the federal government try to repair their balance sheets.
There is a comparison that comes to mind, that the Parliamentary Budget Officer made: if you look at the latter half of the 1990s, from 1997 to 2000, that was a period of robust economic expansion that actually facilitated the fiscal repair progress by provinces and the federal government. The real growth was 4.4%, nominal GDP growth was 6.5%, you had a dollar that was still very weak, and you had interest rates that had declined through the 1990s. It was simply a very fortuitous period to finish that repair process. I don't think the next few years are going to be nearly as kind.
So we welcomed the fact that in the fall update the government had built in at least some uncertainty and the fact that their nominal GDP growth could well be less than the private sector average.
I think a scenario worth looking at is our concern that you could have several years where that happens. But instead of averaging some 2.7% real growth from 2011 through 2015, the average might be significantly below 2.5%, say 2.25%. In fact the GDP deflator is less than 2%.
That's why we're coming out with a nominal GDP that, like the TD, is some $50 billion less by the final year of the update.
Thinking about that, and therefore thinking about the path the federal government has laid out, we've always viewed fiscal 15 as being a balance, looking toward the fact that you couldn't have drastic fiscal repair because of the fragility of Canada's recovery, but also the U.S. recovery and the global recovery and the fact that one needs to move to take advantage of the window of low interest rates.
So it looks to me as though you have a process year by year of adjusting the fiscal reduction plan. Thus there is an extended period of quite significant program spending restraint that does contrast very much with the five years up to fiscal 2008 and would have a fraction of what we had. So as we potentially adjust on the program spending restraint annually, what comes to mind are the principles the U.K. brought forward. Now the U.K. is undertaking a far, far more severe austerity program, but they kept returning to the principles of equity and reform, ensuring that a strong base was laid for longer-term growth.
With respect to the last principle, we would endorse that you stay the track on the corporate tax reduction cuts that are planned. Both the provinces and the federal government will benefit from that in the longer term in terms of their revenues, as has been pointed out, and that type of measure--we are a small, open economy--will open us more to trade and foreign investment, which are extremely important.
Thank you.