Canada Economy: Dollar Soared, Job Losses Piled Up


mentalfloss
#1
Canada Economy: Dollar Soared, Job Losses Piled Up

OTTAWA - A new paper on the impact the strong Canadian dollar has had on the economy puts into sharp focus why Ontario Premier Dalton McGuinty is not the oilsands' best friend.

The analysis by Bank of Montreal economist Douglas Porter traces the 10-year climb of the loonie from about 62-cents in the first quarter of 2002 to it current level above par with the U.S. currency.

The loonie's surge has had several triggers, but a big one has been wealth flooding into the country from exports of commodities such as oil, triggering a 22 per cent contraction in the manufacturing sector, with many of those 500,000 lost jobs being shed in Ontario.

On Monday, the Ontario premier ruffled the feathers of his Alberta counterpart, Alison Redford, by suggesting the strong "petrodollar" had hobbled his province's manufactured exports. "If I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I'll tell you where I stand — with the lower dollar," McGuinty said.

His comments drew a swift attack from Redford and Saskatchewan Premier Brad Wall, but is somewhat backed by a 2008 report from the Organization for Economic Co-operation and Development that referenced the phenomenon known as "Dutch disease."

The term was coined in 1977 by The Economist magazine to describe what happened when the Netherlands first began rapid expansion of a natural gas field in 1959. As the export of gas climbed, so did the Dutch currency, the guilder, making that country's exports less competitive and leading to a collapse of jobs in other sectors.

The shift from manufacturing to oil exports as a key engine of economy growth has hurt Central Canada, particularly Ontario, and helped Alberta, which Porter points out has been the country's "runaway job growth king" over the past decade.

"Fortunately for Canada, the factory job losses have been largely mirrored by solid gains in the resource sector over the past 10 years," Porter says. "Unfortunately, the sector remains only one-fifth the size of manufacturing," he said, noting that trade-offs for growth in the resource sector have not been sufficient to compensate for the losses.


The Canadian Manufacturers and Exporters has also blamed the high dollar, which reached parity about four years ago, for the continuing difficulties in the sector, although the group sees weak U.S. demand as more significant.

Economist Jack Mintz of the School for Public Policy in Calgary says blaming the dollar for manufacturing's decline is too simplistic. He notes that other countries, such as Switzerland, have been able to have the best of both worlds, a robust economy and a strong currency.

Part of the difficulties for Ontario, he said, is that a large part of province's industries were tied to General Motors and Chrysler, which collapsed during the recession.


As well, Canada has seen increased competition from emerging manufacturing powerhouses like China, India, Korea and Brazil.

Porter said he wants to make clear he is not putting the 500,000 lost jobs solely on the doorstep of the dollar, but he added that if the currency continues to remain at current levels, the hollowing out of the sector will only intensify.

Of note was the recent abandonment of the Electro-Motive plant in London, Ont., among other plant shutdowns.

Notwithstanding the gradual recovery in the auto sector, "Canadian manufacturing payrolls look extremely vulnerable to further weakness at today's exchange rate," he said. The decade-long contraction in the key sector has also had several interesting side-effects, including on productivity, the report argues.

The traditional assumption is that a strong currency will force firms to become lean and mean, but manufacturing is among the most competitive sectors in the economy. If there's less of it, overall productivity declines. "Looking at the historical record, periods of Canadian dollar strength have been associated with some of the weakest productivity gains, while the strongest increases have come during periods of loonie weakness," Porter said.

And Canadians haven't gained as much in terms of lower consumer prices as conventional wisdom suggests, possibly because retailers haven't fully passed through the benefits of cheaper imports.

Porter also notes that average inflation has been a bit higher in the past 10 years at 2.1 per cent than in the previous decade, at 1.6 per cent.

Canada Economy: Dollar Soared, Job Losses Piled Up (external - login to view)
Last edited by mentalfloss; Mar 2nd, 2012 at 07:32 AM..
 
captain morgan
#2
How is it that Germany, Japan or Korea can cope with strong currencies and still be the leaders in the manufacturing sector?

A high Canadian dollar is not the biggest reason that the mfg sector is hurtin.
 
Cannuck
+2 / -1
#3  Top Rated Post
This is like the kid getting mad because dad (the guy that gives him his allowance) got a raise....sour grapes.

I understand that it is tough for those in Ontario to accept that they are no longer the leaders of this country. They need to suck it up and move forward though.
 
captain morgan
#4
... That or they take the steps to move themselves back to the top of the heap.
 
Cannuck
#5
Quote: Originally Posted by captain morganView Post

... That or they take the steps to move themselves back to the top of the heap.

We're talking Ontario here. Seriously, what are the chances of that ever happening.
 
petros
+2
#6
Let's see. First it was give up industrry to save maple trees now it's give up industry to save polar bears? Try saving yourselves for once. Same goes for BC.
 
captain morgan
#7
Quote: Originally Posted by petrosView Post

Try saving yourselves for once.

Kudos

Quote: Originally Posted by CannuckView Post

We're talking Ontario here. Seriously, what are the chances of that ever happening.

I don't think that they have much of a choice here
 
mentalfloss
#8
Quote: Originally Posted by captain morganView Post

A high Canadian dollar is not the biggest reason that the mfg sector is hurtin.

Right, the high dollar and manufacturing companies taking the brunt of the recession is what did it. Says so, right in the article.

Makes perfect sense.
 
petros
#9
Article....there is a good reason people go into journalism. No math.
 
bobnoorduyn
#10
Quote: Originally Posted by captain morganView Post

How is it that Germany, Japan or Korea can cope with strong currencies and still be the leaders in the manufacturing sector?

A high Canadian dollar is not the biggest reason that the mfg sector is hurtin.

Actually, Germany shares the same currency as Greece, which isn't terribly strong at the moment. What Germany has is a strong economy despite the de-valued Euro.
 
mentalfloss
#11
Quote: Originally Posted by bobnoorduynView Post

Actually, Germany shares the same currency as Greece, which isn't terribly strong at the moment. What Germany has is a strong economy despite the de-valued Euro.

Most northern European states are doing quite well. It's the south that is getting hammered.
 
petros
#12
Each EU member country still has it own economy, taxation and social programs.
 
captain morgan
#13
Quote: Originally Posted by bobnoorduynView Post

Actually, Germany shares the same currency as Greece, which isn't terribly strong at the moment. What Germany has is a strong economy despite the de-valued Euro.

I can appreciate that the EU shares a common currency. However, although the depressed Euro is currently providing a competitive advantage, we do not need to go back too far in the past in analyzing the German mfg sector's success when the Euro was strong. Germany seems to have a consistent track record in competing successfully regardless of the strength of their currency.

So, my question is this: What is the German manufacturing sector doing that is different from Canada's sector (comparing similar industries)?
 
mentalfloss
#14
Canada Expansion Slows to 1.8% Annual Pace as Growth of Exports Moderates

OTTAWA—The Canadian economy showed signs of revival at the end of last year, a welcome signal that the sharp slowdown of the fall may have been a temporary setback in a slow-moving recovery.

The country’s gross domestic product grew 0.4 per cent in December — after the surprising 0.1 per cent dip of November — posting a 1.8 per cent annualized gain for the final quarter of 2011.

That’s slightly weaker than the Bank of Canada’s call, but the miss was more than compensated for by an upward revision of third-quarter growth to 4.2 per cent from the previously reported 3.5 per cent.

“Overall, the economy has slightly less slack than the Bank of Canada expected, and the markets may begin to more fully believe the bank when it talks of ‘a gradual reduction in monetary stimulus over the projected horizon’,” said Douglas Porter of the Bank of Montreal in a note to clients.

For the year as a whole, the economy rose by 2.5 per cent, down from 3.2 per cent in 2010.

Production of goods grew 3.6 per cent while services expanded 2.2 per cent. Mining and oil and gas extraction, construction, the public sector (education, health services and public administration combined) and manufacturing were the main contributors to overall growth.

Meanwhile, housing investment slowed to 0.8 per cent in the quarter, as did renovations.

Canada Expansion Slows to 1.8% Annual Pace as Growth of Exports Moderates - Bloomberg (external - login to view)
 
B00Mer
#15
Quote: Originally Posted by captain morganView Post

A high Canadian dollar is not the biggest reason that the mfg sector is hurtin.

What manufacturing Industry, NAFTA sent that to China, Mexico and Central America..
 
mentalfloss
#16
Canadian economic growth slows to crawl - Business - CBC News
 

Similar Threads

no new posts