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Cross- border buying set to cost Canada, but
boost U. S.
Trend could hurt domestic growth, online
economic research firm forecasts
BY
ERIC BEAUCHESNE,
CanWest
News Service
OTTAWA — Cross-border shoppers will rob the
Canadian economy of billions of dollars in
economic growth, an economic think- tank is
warning.
The surge in cross-border shopping due to the
strong dollar, and the slump in exports, could
knock nearly three- quarters of a percentage
point off growth in the Canadian economy, says
Action Economics, an online economic research
firm.
However, the U. S. economy could get a much
needed boost from the rise in cross- border
shopping, as well as an increase in exports and
drop in imports resulting from the relative
weakness of its currency against the dollar, the
report adds.
“Overall, the rapid rise in the Canadian dollar
should resonate through both the Canadian and
U.S. economies well into next year,” it said. The loonie closed at $ 1.03 US. “ Canadian dollar
strength adds to the downside risk for Canada’s
domestic economy via deflection of consumer
spending, and will likely exacerbate an already
difficult environment for some Canadian
exporters,” it said. “ In contrast, the U. S.
economy stands to benefit via increased retail
sales and export demand, which would provide a
timely offset to what is shaping up to be a
sizable drag from residential investment.”
Ryan Brecht, an analyst with Action Economics
and author of the report, said in an interview
that it’s difficult to put a dollar estimate on
the cost to the Canadian economy of the increase
in cross- border shopping but that it could be
significant and in the billions of dollars.
The report was issued amid evidence that the U.
S. housing market meltdown was deepening, adding
to fears of a consumerled U. S. recession.
However, BMO Financial Group said that its chief
investment officers on both sides of the border
agree there is “ no recession on the horizon.”
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“Despite the worsening U. S. housing market,
low consumer savings rates, a protracted credit
crunch and a soaring Canadian dollar, the chief
investment officers from BMO Financial Group’s
Canadian and U. S. private banks have a positive
outlook for North American equity markets and
economies in 2008,” it said.
“ The potential for a U. S. consumer led
recession is the biggest risk,” BMO said. “ Yet,
the CIOs expect the Fed to orchestrate a soft
landing . . .”
Another Canadian investment firm said the
Canadian economy has become a lot less dependent
on the U. S. and more so on emerging markets,
like China’s.
“ The Canadian economy, dollar, and equity
markets continue their decoupling from what’s
going on in the U. S.,” Richardson Partners
Financial said.
“ Driving the performance of the Canadian market
over the past five years has been the
unprecedented growth in the emerging markets and
the resulting demand for commodities.”
Still, it conceded that its optimism for
Canada’s economy is tempered by the U. S.
slowdown.
“ The slowdown in the housing market is
beginning to have an impact on the broader
economy as consumer spending is showing clear
signs of slowing,” it said. “ While there are
other parts of the U. S. economy — exports,
corporate spending — that are performing well,
overall growth should continue to slow. . . .”
And it’s not clear if U. S. interest rate cuts
to date will be enough to prevent a recession,
also adding that further rate cuts will likely
be needed.
The Action Economics report suggests that within
North America the dollar could shift growth from
Canada to the U. S..
“The sharp appreciation in the Canadian dollar
has spurred a Canadian cross- border shopping
spree to exploit the most advantageous exchange
rate since the mid- 1970s,” it said, noting
visits to the U. S. were up nearly six per cent
this year, before the loonie reached parity, and
that evidence suggests they’ve increased even
more since. “ The migration of shoppers could
dampen sales at Canadian retailers while providing a timely b o o s t to U. S . exporters
and retailers.” |
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