Canada “Getting Clocked” by Something Far Bigger than Oil

Tuesday, August 18, 2015
By Paul Martin

by Wolf Richter
August 18, 2015

Canada is likely in a technical recession, after the economy shrank for the first five months of the year. It’s heavily dependent on commodities. The oil bust and the broader commodity rout have been blamed liberally. The theory goes that the problem is contained. The oil patch may be wallowing in the mire. But no problem, the rest of Canada is fine.

The swoon of the Canadian dollar against the US dollar has caused a bout of false hope that this would make Canadian exports of manufactured goods more attractive to buyers in the US and elsewhere, and that the economy could thus export its way out of trouble. This theory has now run aground.

Because the threat to manufacturing in Canada comes from Mexico.

“I think Mexico’s just a cheaper place to produce, and you have enough human capital and engineering skills to produce almost everything you can produce in Canada and do it a lot cheaper,” Steven Englander, Citibank’s global head of G-10 currency strategy, told Bloomberg.

And the multi-year swoon of the Canadian dollar against the US dollar isn’t going to help. Over the last three years, the loonie has lost 25% against the US dollar, the peso 21%. Over the past 12 months, the loonie lost 16% against the dollar, but practically in lockstep with the peso.

The Rest…HERE

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