Greater capacity in manufacturing and services needed to
recover ground lost to emerging market countries
TORONTO, May 28, 2018 /CNW/ - Canada is falling
further behind in the race to supply world markets, and if it
doesn't get in the game soon, its dollar could drop to nearly
70 cents US in the next decade, finds
a new report from CIBC Capital Markets.
"Let's face it, since the turn of the millennium, other than in
the post-recession bounce-back, Canada has been an also-ran in the race for
global and US markets," say CIBC Capital Markets economists
Avery Shenfeld and Royce Mendes in the report. "What's been lacking
are ribbon-cutting ceremonies at the new facilities—factories, labs
and office towers—needed to expand export capacity."
Growth in Canadian exports and industrial capacity has gone
missing in all but a few sectors since the late 1990s, leading to
the question: can the country compete as a location for such
facilities today, the report notes.
While there has been much self-congratulation in Canada about a few success, Canada's share of U.S. goods imports has
dropped from nearly 20% at the turn of the millennium to only 13%
today, the report finds. In autos, for example, Canadian assembly
plants are producing a million fewer units, with the sector's share
of private sector employment tumbling by the equivalent of 100,000
jobs.
Other weaker elements have been a "hodge-podge of manufacturing
sectors which have in many cases seen Canadian activity supplanted
in the US market by Mexico or
other low-cost competitors," the report states. "Simply put, export
volumes have grown at a snail's pace as plants shut their doors in
Canada and opened elsewhere."
Meanwhile, some of the same emerging market countries that are
challenging Canada in
manufacturing are "also banging down the doors in services" where
Canada's share of the U.S. import
market has eroded more than all other developed economies, the
report says.
"If we don't make progress in tilting the playing field back to
Canada, there is always the
market's invisible hand to do the work for us. A poor current
account will, over time, tend to push the Canadian dollar weaker
against others.
"It would be better if Canada
had other advantages to support export growth, rather than rely on
a weak loonie that makes us less able to spend abroad," the report
says. "But if that's not forthcoming, the Canadian dollar will bear
the burden of adjustment, spurred by a weak current account,"
dropping its value to 60 cents US in
the 2020s.
So, what are potential remedies? Targeted support for training
and education, particularly in tech-related services, along with a
"thinning of the regulatory books, faster government project
approvals, lower corporate taxes and improved business
infrastructure" would be helpful, the report says.
With Canada now tapping the
brakes on debt-financed consumption for financial stability
reasons, the country needs exports and related capital spending to
help fill the gap, the report adds. "Such a shift to a more
balanced economy would also tend to raise productivity, leaving
more scope for higher real wages."
The complete CIBC Capital Markets report is available here.
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SOURCE CIBC - Economic Research