Dismal dollar: Is a weak loonie all bad news for the economy?
Published Friday, January 8, 2016 9:55AM EST
The loonie hit its lowest level in more than 12 years this week, briefly trading below 71 cents US, but one Canadian economist says the weak dollar isn't all bad news.
While Canadian consumers will notice prices going up in grocery stores, malls and when shopping online, Craig Alexander, vice-president of economic analysis for the C.D. Howe Institute, says the weak dollar is good news for exporters and will help soften the blow from plunging oil prices.
"A weak Canadian dollar is actually good for the Canadian economy," Alexander told CTV's Canada AM on Friday.
Alexander said there's "a lot of pain" in Canada's commodities sector, especially in Alberta with plunging oil prices. But he said the weak loonie will act "as a shock absorber" in those industries.
"They sell their products in U.S. dollars, so when they convert it back into Canadian dollars, a weaker loonie helps soften the blow from weaker oil prices," Alexander said. "…It means that you end up with fewer job layoffs and job losses."
Meanwhile, a weak loonie makes Canadian exporters more competitive, especially for those selling their products in the U.S.
Alexander said this can lead to job growth and higher wages.
This seems to be the case for Carleton Place, Ont.-based bat maker Sam Bat, which sells the majority of their products south of the border.
The company's president Arlene Anderson told CTV Ottawa on Thursday that sales are up 35 to 40 per cent.
"That's a major advantage to us," she said.
In a speech in Ottawa on Thursday, Bank of Canada governor Stephen Poloz said non-resource sectors have seen rising employment and investment.
Weak dollar part of ‘natural process’
Alexander said the weak Canadian dollar is part of a “natural process.”
“It allows our economy to adjust to lower commodity prices, and help it perform in a tough economy," he said.
However, Alexander acknowledges that there's a "negative tone" associated with a weak dollar, and a low loonie is bad news for importers.
Ultimately, he said the higher costs of imports, including for fresh fruits and vegetables and clothing, will be passed on to consumers.
"Canadians will be frustrated that when they buy things online, that are often priced in U.S. dollars, that they're going to be paying more," Alexander said.
He continued, "There's no question that for imported goods or for spending abroad, a weak Canadian dollar does have negatives to the economy."