The TSX Composite fell by 4% in the first week of 2016, and the dollar continued its slide down toward the 70 cent mark. As the Empire Club of Canada and the other major speaker’s podiums across the country held their traditional economic forecast luncheons, the mood was somber as the nation’s financial industry took in the numerous challenges being faced by Canada’s weakening currency and how it would impact investors and average Canadians. Much of this is of course attributed to the price of oil, often cited as one of the traditional backbones of Canada’s prosperity, and to the relative strength of the American greenback. Where will this lead us, and how much of an impact will it have on our standard of living, is still up for debate, but many feel that this new, lower-value Canadian dollar will be with us for some time to come and that the country must respond to this new reality through more technological innovation and a more robust manufacturing sector. The last time the loonie was this low, the American economy was also in bad shape, but now the country is watching the US economy and dollar doing well, a stark reminder to many that our recovery is not occurring at anywhere near the same levels as those achieved by our neighbor to the south.
Where does this leave us at the beginning of 2016? The answer is unclear, to be sure, but one interesting exercise is to go back and see what was being said at the Empire Club back in 2002 when our dollar sank down near the 60 cent level, an all-time record low, causing many to nostalgically recall the period between 1854 and 1914 when the Dominion of Canada was under the gold standard, and the value of the Canadian dollar was fixed in terms of gold and valued at par with the U.S. currency. Many of the business and political leaders who addressed the Club 14 years ago lamented how many issues that harsh reality created for business, such as Mark Bruneau, then-President and CEO of Adventis, who on March 21st of that year delivered a speech on “Telecoms Convergence: Focusing Innovation and Reversing Canada’s Talent Flight” during which he outlined ten issues impeding strong economic growth in the country, almost all of which were related to the financial situation of the day:
1. Per-capita GDP at three-quarters that of the U.S. and seventh in the OECD countries.
2. Per-capita real after-tax income has fallen by 8 per cent in Canada since 1989, while it has grown by 20 per cent in the U.S.
3. Our 60-cent dollar, which makes productivity-enhancing investments very expensive and Canadians poorer.
4. A corporate tax structure, which impedes the diversification of our economy away from commodities and their dollar-weakening effect.
5. A personal income-tax rate which is still too high when including the full picture of brackets, exemptions, deductibility of state taxes, capital gains, etc.
6. Comparatively high public debt-to-GDP ratio, 106 per cent in Canada versus 57 per cent in the U.S. according to a recent C.D. Howe Institute roundtable.
7. Deteriorating labour productivity, currently 20 per cent lower than the U.S. and growing at only one-third the rate.
8. Critical shortage of engineers and scientists.
9. Comparatively small venture-capital market, driving some of our innovators to the U.S.
10. Eroding sense of national identity. Other than that, everything is just fine.
Some of these issues have been addressed, to be sure, but many are still viewed by those in the international financial community as lingering and persistent problems that will have to be overcome for Canada to truly regain its earlier levels of prosperity. In the interim, his third point, that a low dollar makes Canadians poorer, is something that is keeping many of our citizens from sleeping as well as they would like. Mixed with the enormous problems around climate change and terrorism, many Canadians are starting off the new year with very cautious optimism at best, and concern for what may lie ahead.
