Winners and Losers from the Slumping Loonie...Through a British Columbia Lens

In the final months of 2012 the Canadian dollar was trading slightly above parity with the US greenback. Nearly three years later, one Canadian dollar is worth ~76 US cents. This marks an unprecedented depreciation of the Canadian currency – more than 25% in a bit less than three years. A decline of this speed and magnitude has significant economic implications.

In the final months of 2012 the Canadian dollar was trading slightly above parity with the US greenback. Nearly three years later, one Canadian dollar is worth ~76 US cents. This marks an unprecedented depreciation of the Canadian currency – more than 25% in a bit less than three years. A decline of this speed and magnitude has significant economic implications.

British Columbia is an open, trade-dependent economy, so the exchange rate affects most sectors of our economy. The exchange rate – particularly the bilateral exchange rate with the US – arguably is the most important “price” in the province’s economy.

Highlights

• The recent decline of the Canadian dollar relative to the US dollar is the steepest on record over any three-year period.
• The Loonie’s fall touches nearly all aspects of the BC economy. Although there are winners and losers, on balance a lower dollar is positive for economic and job growth in the near term.
• A weaker currency makes BC’s exports more competitive in international markets. This is the main reason for the aggregate economic lift from a lower dollar.
• The forest industry, tourism, film production, the gateway sector, and parts of the manufacturing and high technology industries are among those that gain from exchange rate depreciation.
• In general, BC consumers are negatively affected, because the sagging dollar results in higher prices for many imported goods and services. It also makes it more costly for Canadians to travel to and purchase goods, property and business assets in the United
  States.
• The lower dollar is deterring cross-border shopping, which is helping BC retailers operating in close proximity to the Canada-US border. For local consumers who save money from shopping in the US, a depreciating currency is less welcome.
• The weaker Loonie makes imported machinery, equipment and software more costly, which will dampen capital investment and weigh on productivity growth in BC over the medium term.