UPDATE 2-Strong C$ should spur productivity-Bank of Canada

* Businesses need to employ strong currency

* Slow export recovery due to sluggish global economy

* Pressure on exporters expected to remain
(Adds quotes)

By Leila Lemghalef

MONTREAL, March 28 (Reuters) – The strong Canadian dollar
should spur businesses to boost their productivity, the Bank of
Canada said on Monday as it warned that pressures on exporters
would not necessarily dissipate as the economy recovers.

“The fact that we have recently seen a strong dollar has
played an important role in the performance of exports,” Jean
Boivin, deputy governor of the central bank, said in French
after a speech in Montreal.

He spoke of “the importance of becoming more productive …
in a world where we are faced with an appreciation of the

The slow recovery of exports was due partly to the sluggish
global economy and partly to the erosion of competitiveness
over the last decade, due to the Canadian dollar’s rise and to
poor productivity, Boivin said during his speech.

“As global economic growth continues to take root, we are
seeing early evidence of a recovery in net exports. But, at
this point, exports are still weak when compared with previous
recessions,” he said, addressing the Montreal CFA Society.

“And in a world of growing international competition, we
should not assume that the forces causing the erosion of
competitiveness through the previous decade will simply fade
away because of a global recovery.”

International competitiveness is one of three important
issues lingering from the recession, Boivin said. The other two
are household indebtedness and productivity.

“The standard of living that we will be able to sustain in
the medium term will depend, in fact, on our ability to address
these issues,” he said.

Canada went into what he called the Great Recession with
room to maneuver, but if the crisis had struck when Canada was
more vulnerable and had less flexibility, “things could have
unfolded very differently, with disastrous results.”

The central bank has frequently expressed concern about
high household debt levels, but Boivin said the bank was now
seeing some signs that the rate of household spending was
corresponding more closely to earnings.

For productivity, he said, it was important to boost
investment. The slow recovery of investment was surprising in
light of low interest rates and a strong currency.

Canadian investment in machinery and equipment fell faster
than in the United States and still lags U.S. investment,
despite the fact that the U.S. recession was more serious.

Less than half of the drop in investment seen in Canada
during the recession has been recovered, he said.

On Saturday, Bank of Canada Governor Mark Carney said the
commodity price boom could last for decades. He urged his
emerging market peers facing inflationary pressures not to
delay too long before raising interest rates. [ID:nN26115578]
(Writing by Randall Palmer; Editing by Jeffrey Hodgson and Rob

UPDATE 2-Strong C$ should spur productivity-Bank of Canada