Margareta Dovgal: Canada’s tumbling dollar is a symptom of Liberal mismanagement

The Canada dollar could drop further against U.S. dollars if productivity doesn't improve, economist argues. Photo by Peter Thompson /National Post

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As a university student in Vancouver a decade ago, I’d regularly hit up the Warehouse, an ultra-budget pub because they offered an enticing $5 burger or plate of pasta. I went back recently, and when I saw that the same items today run around $12, I felt something between shock and bereavement.

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The average wages of Canadians certainly didn’t double. Canadians are earning about $1,300 a week, up roughly a third since 2016. That bump has been swallowed up, as everything has become more expensive — groceries alone have risen just as much. The asking rent on a Vancouver one-bedroom has, just like the burger, more than doubled. I do love to reminisce about the $800/month rent I landed for a two-bedroom back in 2013, split with a roommate. And then, I look at the $3,000 I pay today, and I can only grimace.

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Our dollar has gotten materially weaker, and relative to our peers and our potential, Canada is poorer. That has been driven by a combination of declining investment, rising labour costs, and worsening productivity.

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In late June, the loonie hit $1.42 against the U.S. dollar, its weakest in more than a year. Economist David Rosenberg, never one to miss a downturn, is expecting $1.50 soon and $1.60, or 62.5 U.S. cents, later, unless there are significant improvements in productivity.

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We haven’t seen the Canadian dollar that low since early 2002. Rosenberg’s forecast is simple math. What a worker costs, per thing they make, which economists call unit labour costs (ULC), is basically their pay per hour divided by what value they produce in that same hour. In Canada that cost is going up “around eight per cent” a year, according to Rosenberg. In America, it’s close to flat.

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This is because American workers produce more value each hour, so the labour cost is relatively more affordable.

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As the dollar depreciates, it becomes more expensive in relative terms to pay for imports. We are all essentially receiving a national pay cut, just as the cost of living gets harder and harder to bear.

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There has been a noteworthy decoupling. In 2007, the rallying price of oil pushed the loonie toward parity with our southern neighbours. The petro-currency link was a boon for our economy. Higher prices meant drilling programs, camp wages, welding contracts, and equipment orders. And, yes, $5 burgers for students downstream of the boom because a dollar went further.

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So what changed?

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Around 2017, that link started to falter. Oil revenues still flow, but more of the cheque now goes to bondholders in New York or buyback programs for shareholders in Houston.

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Alberta Central, a lender for credit unions, has found that the correlation between oil prices and the Canadian dollar didn’t just weaken after 2017. In places, it actually flipped. As conflict in the Middle East drove WTI near US$100 this spring, the loonie barely moved, staying stuck around 73 cents.

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Capital decisions in the oilsands translate to wages for Canadians, but that only happens when energy investors have confidence that putting money back into Canada yields a return. When they lose that confidence, we lose that investment and the prosperity that flows from it.