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Overall Canadian Economy Still improving despite Dollar gains says CIBC
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A CIBC report suggest that the overall impact of the rising dollar will not hurt the Canadian economy as widespread job growth has dwarfed losses in Canada's dwindling manufacturing sector. The report finds that while a fifty-per-cent rise in the value of the Canadian dollar in the last five years has hastened the loss of 275,000 jobs in the manufacturing sector, these losses have had little impact on the
overall economy.
Job gains in the construction and resource sectors have more than offset losses in manufacturing. In addition, the services industry has added more than one million jobs in Canada over the past five years. Canada's trade surplus is as large today as it was five years ago when the dollar was trading below 62 cents American. While non-resource manufacturing exports have suffered, exports of energy and industrial goods/materials have more than compensated, soaring from $120 billion to
$200 billion (at annual rates) since 2002. Oil sand production is scheduled to double or perhaps even triple within a decade. Even at today's oil prices, soaring oil sands production would boost crude exports by some $50 billion over the next decade. Additional support from non-petroleum
exports, added to the likelihood of higher prices, should ultimately produce an energy trade surplus double what it is today, rising to 6 per cent or more
of GDP.
Between 2002 and 2006, much of the run-up in the Canadian dollar could be attributed to a weakness in the American currency. The record U.S. current account deficit, which hit 6.5 per cent of GDP last
year, has seen value of the greenback drop more than 20 per cent on a trade- weighted basis. This includes a 50 per cent drop against the euro and a near- 40 per cent stumble versus the British sterling.
The report notes that elevated commodity prices, and the capital flows they trigger in Canada's resource sector, look to remain firmly behind the loonie. Since 2006, the Canadian dollar has benefited from over $200 billion in inbound merger and acquisition activity.
CIBC World Markets expects the Bank of Canada will welcome the dampening influence of an even stronger currency on both economic growth and inflation. Further job losses in the factory sector will open a bit of slack in the ultra-tight labour market and a stronger currency will see continued price breaks on imported goods. The bank's research indicates that appreciation in the Canadian dollar will bring core inflation back to the Bank of Canada's two per cent floating target. Certainly exporters will be happy with the proposed changes (interest rate hike) by the Bank.
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Barry
Mr. Do It All
Jun 19, 2007, 7:08 PM
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