This week saw the arrival of two more reports denying that Canada is suffering from Dutch Disease, that condition in which a country’s manufacturing export base hollows out because of a high currency linked to oil exports.
But a new analysis from BMO Capital Markets illustrates just how intensely Canada’s non-energy export sector has collapsed in recent years. And yes, the economist behind it does put some — just some — of the blame on a rising dollar.
Check out this chart from BMO economist Douglas Porter. The blue line represents the trade balance in energy exports. The red line represents the trade balance in everything else. Everything else has fallen off a cliff.
Note that the decline began at the start of the last decade, and accelerated sharply with the arrival of the Great Recession about five years ago. Canada has gone from consistently running trade surpluses in both the energy and non-energy sectors, to running overall trade deficits.
Porter notes that last year Canada ran a record $12-billion merchandise trade deficit. He points to three reasons for the decline: Weakness in the U.S. economy, the slowdown in China, and the high Canadian dollar.
“Net trade was weakening prior to 2007 due to the relentless rise in the Canadian dollar from 2002 right up to 2007.... Over that period, it rose by more than 60 per cent against the U.S. dollar,” he told HuffPost.
Of course, whether or not this means Dutch Disease depends on whether you believe the dollar rose because of oil exports. Porter suggested it may simply have to do with the fact that Canada has had a stronger economy in recent years.
“Canadian domestic demand was consistently stronger than U.S. spending growth for much of that decade, with incomes boosted by strong commodity prices and rebounding government spending,” he said.
But one thing is becoming clear: We are going from being a country that outsells its business partners, like Germany, to a country that outbuys its business partners, like the U.S.
And what strength remains in our export prowess now belongs to the energy sector.
So how’s the energy sector doing?
TransCanada recently reported a drop in earnings; Suncor took a $1.5-billion writedown; EnCana has seen its shares plummet over missed production forecasts; and Enbridge reported an 8-per-cent dip in profits.
And this is the sector driving our exports? Uh oh.
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