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Weak loonie good for exporters, but bad for everything else in economy: report

OTTAWA - A new report by the former chief economic analyst for Statistics Canada is contradicting conventional wisdom about the impact of loonie fluctuations on the economy.

Philip Cross says in an analysis for the Fraser Institute that a weak loonie is a net loss for the economy, with negative impacts that outnumber the positives.

The paper comes as the loonie was testing out new lows - under 89 cents US - and economists were calling for the currency to fall further in the months ahead.

Cross concedes that the soft currency is a benefit to manufacturers who ship much of their product to the United States, but not as much as advertised, he says.

For one thing, exporters may get higher returns for their products in the U.S., but they also pay more for imports of machinery and equipment, more than half of which come from outside the country.

A low-flying loonie does help Canada's resource industries because they export more than they import, but Cross says market demand, rather than the currency level, is the key driver in the sector.

Meanwhile, Canadians pay more for gasoline because oil is priced in U.S. dollars and higher consumer prices generally, and governments must pay more to service their debts.

In two other economic reports released Thursday, the TD Bank and the Conference Board forecast the Canadian economy will overcome the slow start from the unusually cold winter and post an improvement from last year's 2.0 per cent growth rate to 2.3 per cent this year.

They cite an expected pick-up in exports based on increased demand from the U.S. and the weak loonie as contributing factors.

The Canadian Press


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