Is Now The Time To Buy Canada?

 | Jul 28, 2015 05:00AM ET

A recent BNN report indicated that the Bank of Canada is confused as to why Canadian exports aren't picking up:

Bank of Canada Governor Stephen Poloz called the persistent weakness in Canada’s non-energy exports “puzzling” in the central bank's latest assessment of the economy. And a former colleague of the central bank governor at Export Development Canada (EDC) is confused by the shortcoming in exports as well.

“We can attribute some of this. But a bunch of it we can’t,” Governor Stephen Poloz told reporters in the question and answer session that followed the Bank of Canada’s second rate cut of the year.

After crude oil and natural gas, Canada's largest exports to the U.S. include vehicles, machinery, and plastics.

Peter Hall, vice president and chief economist of Export Development Canada, says the lower loonie is only an effective stimulant to the export economy when it coincides with a groundswell of demand from our neighbours to the south. The problem, he explains, is that groundswell hasn’t materialized despite a bevy of strong U.S. economic indicators.

“They’ve got job growth. They’ve got real income growth. They’re confident again. They’ve reorganized their debts, and they have lower gas pump prices that are giving them $100 billion extra to spend. Put that all together. They should be spending. What are they doing? They’re saving at the moment. They’re as nervous as everybody else about the wiggles in the economy after six years of flat performance,” said Hall, who worked alongside Poloz at EDC for nine years.

Here is the reasoning. The Canadian economy is reasonably well diversified between the resource producing regions and the industrial heartland. When commodity prices boom, the resource provinces benefit and the CAD/USD exchange rate rises. When they retreat, the exchange rate falls, which makes the manufacturing centres more competitive, which raises exports to Canada’s largest trading partner, the United States.

This time, the BoC is puzzled as to why manufacturing exports aren't rising. In a separate report, the Globe and Mail quotes BoC governor Stephen Poloz as being puzzled:

Canada’s non-resource exports have “faltered” of late and remain “a puzzle that merits further study,” according to central bank Governor Stephen Poloz. One thing is clear, however: Canada’s share of U.S. goods imports has eroded over the past four decades. “Notably, the U.S. now imports roughly equal dollar amounts of goods from Mexico and Canada, versus 10 years ago when they brought in $1.70 (U.S.) from Canada for every $1 from Mexico,” Robert Kavcic, senior economist at BMO Nesbitt Burns, said in a note.
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Canadian market share of US imports