Weak U.S. investment hampers Canada's non-energy exports

Wed Aug 10, 2016 4:56pm EDT
 
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By Fergal Smith

TORONTO Aug 10 (Reuters) - Weak U.S. business investment has hampered a long-awaited pick-up in growth of Canada's non-energy exports, economists say, while a weaker Canadian dollar has not helped exports as much as expected.

The dollar has fallen 18 percent against its U.S. counterpart since mid-2014, when the price of oil, one of Canada's major exports, began to collapse.

Canada needs higher non-energy exports from consumer goods to industrial machinery to offset the oil price shock and to reduce the onus on the Canadian consumer to keep spending to support the economy. Higher exports could also reduce the economy's reliance on an overheated housing market.

The weaker currency has helped exports, but the loonie recently gained ground against other currencies from markets such as Mexico, limiting the impact.

"Since the depreciation has been even larger in Mexico, more of those (U.S.) imports are going to Mexico rather than Canada," said Nathan Janzen, senior economist at Royal Bank of Canada.

Over the same period since mid-2014, the Mexican peso has lost 29 percent of its value against the U.S. dollar.

"There is also the impact from losing a lot of manufacturing capacity. So we don't have as many exporters to take advantage of a cheap Canadian dollar," said Nick Exarhos, economist at CIBC Capital Markets.

The Bank of Canada has been counting on an uptick in non-energy exports for the economy to meet its growth projections. But the latest trade data for June revealed a drop for those shipments.   Continued...