Economic analysis

Is the falling Canadian dollar good or bad for the economy?

Or a little bit of both?

Brent Lewin/Bloomberg via Getty Images

The Canadian dollar has had a rough time of it lately. The loonie has fallen by about five per cent in just over two months, reaching its lowest level since September 2009.

News that the loonie is trading at below 91 cents US comes one day before an announcement from the Bank of Canada about interest rates. While the Bank was initially in favour of raising rates, it has taken a more neutral stance in recent days. One of the reasons the loonie has been faring so poorly is because of stiff competition from a rising U.S. dollar. The U.S. Federal Reserve’s move to taper its bond-buying program has led to traders favouring the American dollar.

But what is the significance of the depreciating dollar for Canadians? The Conference Board of Canada says the dip in the dollar’s value will have a “small net positive impact on economic growth in the short term.” That sounds good. But wait, the think-tank also says the falling loonie will take a negative toll on consumers’ wallets. That doesn’t sound so good.

Confused yet? It is exactly this mixed bag of expert economic opinions that a popular satirical CBC television show takes aim at.

In tonight’s episode of This Hour Has 22 Minutes, the show talks to economic professors to find out what the falling loonie really means. After one professor attempts to explain that “it could be good, it could be bad” for firms, it seems only logical when Abdul Butt, a Montreal comedian playing a business reporter on the show, depicts the loonie as the victim with a noose in a Hangman game.

In a blog post on the Conference Board of Canada’s website, authors Glen Hodgson and Michael Burt write that the cost of imported goods will go up, limiting Canadians’ purchasing power and spending habits. But the underperforming Canadian market, they argue, could actually help “stave off the risks of deflation.”

In the end, the long-and-short answer is that the falling loonie is both a blessing and a curse.