Canada's job recovery will reflect growing divergence between resource and export sectors: Don Pittis

"The chart between oil and the Canadian dollar looks like a pair of train tracks," said Bank of Canada governor Stephen Polozin Ottawa Thursday.

As Poloz was speaking, fears of a meltdown in China, one of the world's biggest resource consumers, was sending Canada's commodities-heavy stock indexto abear market close.

The governor's folksy description of oil and loonie plunging in perfect parallel was in sharp contrast to what he sees as the result of that plunge: a sharpdivergence, not just between the U.S. and Canadian economiesbut between Canada'sshrinking oil and resourcessector and a recovery in other parts of the economy.

That double divergence is expected to showup in the jobs market and the recovery won't be quick.

• TSX in bear market as China fears grow
• Stephen Poloz says divergent monetary policy may see loonie lower
• Loonie hits lowest level since 2003 as Canadian oil trades below $20 US a barrel

Despite the new gloom that accompanied theglobalmarkettumble, Poloz said, there is already evidence of what he calleda "solid U.S. economic expansion."This week, an independentpayroll survey showed the private sector created 257,000 jobs in December, the most in 12 months.

Growing gap

U.S. economists are forecasting that Friday's job numbers will show200,000 new jobs created inDecember and arepredictingunemployment will stay at a low fiveper centwhereas Canada's unemployment rate lingers around seven per cent.

On Friday, Statistics Canada said Canada's economy added an unexpected 23,000 jobs in Decemberbut almost all of them were in one province Ontario.

Alberta and many other provinces lost ground, something that underscoresa growing gap within the country:As energy prices fall from low to low, we are seeing what Maclean'smagazine this weekcalled the death of the Alberta dream.

"The unemployment rate in the energy-intensive provinces has risen by more than two per cent since November 2014," Poloz said.

During the same period, he said, the jobless ratehas remained unchanged for the rest of the country.

Our chief central banker says he can do nothing about the world price of oil,but ascommodity prices crash worldwide, there is some small comfort for Canadian producers. The parallel plunge in the looniereduces the Canadian costs of doing business here. Yetoil remainspriced in U.S. dollars, reducing some of the pain.

For the nation as a whole, there is a second consolation, but it isn'tas soothing to the oil-producing provinces. In fact, speaking to an Ottawa audience,Polozperhaps unintentionallyframed it in a way that made it seem Alberta's losswas everyone else's gain, and vice versa.

Recovery 'buried in the data'

"During the last 10 years or so, we've lost close to 10,000 manufacturingexporting firms," saidPoloz. "But at the time, that was replaced by new jobs in the energy sector. Now, we expect the reverse to happen."

Poloz insists the low loonie is already sparking a realignmentas the country's growth engine shifts from the commodities sector to the non-commodities part of the economybut saysthe gains are "buried in the data" as losses hit so many different companies with links to the energy and commoditysectors.

Just as the destruction of the non-resource sector happened over a decade,thisrecovery will also be measured in years even with the lowloonie. The new divergence within the Canadian economy can be compared to a slow healing process after a majorinjury, which could take up to five years, Poloz said.

And that healing process could be prolonged by another big shock.

Growing China fears

Enter the growing crisis in Chinathat international financierGeorge Soros, who made his fortune betting against the British pound in a previous crisis, has called an echo of the global crash of seven years ago.

"China has a major adjustment problem," saidSorosat an economic conference in Sri Lanka.. "I would say it amounts to a crisis. When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008."

Back then,few predicted thata U.S. meltdown, based on over-valued house prices, would sweeparound the world. It's not clear whether a similar meltdownbased on an over-heated Chinese economy would have as wide an impact.

But a serious disruption in China's economy will have ripples that reach far beyond Canada's resource sector. By hurting export markets around the world, damaging financial markets in ways we cannot yet understand,it could also send Canada's industrial exportrecovery far off track.

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