Low loonie lifts exports, but not jobs
CIBC REPORT
• It’s a recurring theme among policy-makers and economists: Canadian manufacturers aren’t taking enough advantage of a weak dollar to expand their operations outside the country and help lift the economy out of its post-recession doldrums.
But that scenario may not tell the whole story.
In general, manufacturers have “responded better than advertised” when it comes to tapping into current global demand and currency move- ments, CIBC World Markets said in a report Wednesday.
Export volumes by Canadian plants have managed to keep up with this demand — albeit at a slower pace than before the 2008- 09 recession — and it has been dollar- sensitive sectors that been leading the way. Since 2012, for instance, shipments of manufactured goods have increased by 12 per cent.
“The real disconnect is the inability of manufacturers to translate these export gains into GDP and employment gains,” CIBC economists Benjamin Tal and Katherine Judge wrote.
The Canadian currency was last at par with the U. S. dollar in late 2012, but it has been weakening steadily ever since, making our exports more affordable — although resulting in higher costs for imports. The loonie was trading around US75 cents on Wednesday, the lowest level — based on a yearly average — since 2003.
For the past four years, export volumes of dollar-sensitive industries — such as aircraft, plastic, and pharmaceutical and medicinal products — have increased more than many other sectors. Even so, those dollar-sensitive industries actually underperformed when it came to growth in jobs and the economy overall.
“In fact, on both counts, dollar- sensitive industries underperformed non-dollar-sensitive industries. This abnormal behaviour suggests that despite a currency- induced relative improvement in labour costs, labour-intensive industries — of which many are also Canadian-dollar-sensitive — cannot be the chief catalyst of manufacturing growth in the near term,” the CIBC economists argue. “Capital-intensive industries must step up to the plate.”
It’s no secret the Bank of Canada is anxious to see a change in that scenario. Governor Stephen Poloz — who previously headed Export Development Canada, the federal credit and financing agency — has labelled the manufacturing sector performance since the recession as a “serial disappointment.”
“Granted, there are many explanations for that disappointment,” t he CIBC economists said in their report. “U. S. demand for our products has been slowing. American consumers are buying more domestic services than the goods that we sell them and the manufacturing capacity lost during the dark days of parity is still compromising the ability of some industries to respond to what little demand there is out there,” the report said.
“So, we’re not translating those export gains into employment and GDP,” Tal said in an interview. “But maybe companies don’t need any more ( employees). They’ve hired enough. Or maybe they’re can’t find the people they want,” he said.
“I’m saying, OK, we got what we could get from the labour story. When you have capital- intensive ( companies) starting to move, for the country as a whole, productivity will improve and the economy will improve.”
“More importantly, productivity will rise, which will increase wages and everything else.”