BUSINESS

Falling Loonie Will Eat Up Your Gas Savings, TD Bank Says

03/24/2015 12:02 EDT | Updated 03/24/2015 12:59 EDT
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An used black leather wallet showingl a hand taking currency from it to make a purchase. Light background.

  • Canadians to save $800 on energy, dish out extra $600 on imports
  • Unemployment to jump to 7 per cent

Canadian consumers are seeing noticeably lower energy prices in the wake of the oil price collapse, but a new forecast from TD Bank says it won’t be much help — because the falling loonie is causing the cost of imported goods to rise.

“We are expecting Canadian households will save up to $800, on average, at the pumps in 2015, although as much as $600 of this savings will be needed to pay for the higher cost of imported consumer goods,” TD economists said in the bank’s latest economic forecast, issued Tuesday.

The bank also expects a rise in the unemployment rate to around 7 per cent by the end of the year, falling back down around 6.7 per cent by the end of 2016.

Canada’s unemployment rate had been hovering around 6.6 per cent at the end of 2014 and the start of this year, before jumping to 6.8 per cent in February as job growth stalled in the month.

Even though it will eat into household budgets, the weak loonie will benefit Canada’s exporters, TD Bank said. The Canadian dollar was trading around 79.9 cents U.S. at mid-day Tuesday, down some 20 per cent over the past two years.

TD has slashed in half its forecast for Canadian economic growth for the first quarter of this year, and now predicts growth to come in at 0.5 per cent, compared to an earlier forecast of 1 per cent.

For the whole year, it sees growth at 1.9 per cent, down slightly from its earlier forecast of 2 per cent.

A number of unexpectedly bad reports on the state of Canada’s economy issued last week have convinced some analysts that Canada’s economic growth may have turned negative, at least briefly, in the early part of the year.

Wholesale trade saw its largest drop in six years in January, StatsCan reported last week, while retail sales for the month fell an unexpected 1.7 per cent.

Canada’s GDP, at least for January, “looks set for a modest drop,” CIBC economist Nick Exarhos wrote.

But the TD forecast says a relatively strong U.S. economy, coupled with a low loonie and “ultra-low interest rates,” will keep the Canadian economy from falling into negative growth this year.

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