The Dollar Could Tank

If you’re like me you don’t like the sound of a weak dollar. Food, clothes, flights, currency exchange- they all get more expensive.

So lets hope that a new report released by CIBC turns out to be wrong.

The report says the Canadian dollar could drop to nearly 70 cents US in the next decade if Canada doesn’t starting exporting more goods.

“Let’s face it, since the turn of the millennium, other than in the post-recession bounce-back, Canada has been an also-ran in the race for global and US markets,” say CIBC economists Avery Shenfeld and Royce Mendes in the report. “What’s been lacking are ribbon-cutting ceremonies at the new facilities--factories, labs and office towers--needed to expand export capacity.”

The report says growth in Canadian exports and industrial capacity has been very low in all but a few sectors since the late 1990s.

Because of this the report asks: can the country compete as a location for such facilities today?

The share of U.S. goods from Canada has dropped from nearly 20% at the turn of the millennium to only 13% today.

In the auto sector, for example, Canadian plants are producing a million fewer units, with the industry’s share of private sector employment falling by 100,000 jobs.

Other areas Canada has suffered have been “Manufacturing sectors which have in many cases seen Canadian activity supplanted in the US market by Mexico or other low-cost competitors,” the report states. “Simply put, export volumes have grown at a snail’s pace as plants shut their doors in Canada and opened elsewhere.”

“It would be better if Canada had other advantages to support export growth, rather than rely on a weak loonie that makes us less able to spend abroad,” the report says. “But if that’s not forthcoming, the Canadian dollar will bear the burden of adjustment, spurred by a weak current account,” dropping its value to 70 cents US in the 2020s.

Suggested as solutions are: targeted support for training and education (particularly in tech-related services), deregulation, faster government project approvals, lower corporate taxes and improved business infrastructure.

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