Beyond the Bailout
September and October have been quite the wild ride. With the $700 billion financial rescue package, a Canadian federal election, the U.S. presidential race, and the threat of corporate bankruptcies, it’s been hard to de-politicize the current economic environment and take note of the fundamental trends at play. For most of 2008, Toronto didn’t need to worry about this big picture—the TSX was the world’s leading (or least worst) stock market and its economy didn’t look too shabby. Recently, though, the situation has deteriorated, and things in Toronto don’t look very promising now: since September 1, the TSX has lost 32% of its value. To make things worse, its daily volatility has been obscenely high and 5–8% intra-day swings are not uncommon. Why does this matter? Because the investment savings or RRSP you’ve been trying to start (or have continued to fund) will also be down by 32% on average, and the baby boomers’ pension plans are taking a deep hit.
Now, the next blow: the plummeting Canadian dollar. On Wednesday, the loonie closed below US$0.80 for the first time since 2005; as of this morning, it will take you $1.27 Canadian to buy one U.S. dollar. Over the past thirty days, that Boxing Day trip across the border you were thinking about taking has become 23% more expensive, as did the cheaper cars that Canadians have been buying in the U.S. Just like the TSX, this precipitous drop in the Canadian dollar’s value emerged because of falling commodity prices and in almost no time, Toronto, and Canada, has caught up with the rest of the world.
Before you get freaked out, remember that some good can come from a devalued loonie. Tourism in Toronto, for one, may get a boost. As for the ailing manufacturing sector, a lower Canadian dollar will make Canadian exports cheaper for Americans, helping to stanch the personnel cutbacks. Finally, if the lower value persists, U of T could increase its North American profile and become a desirable target for American students (just like McGill, which has increasingly promoted itself as a cheaper alternative to U.S. schools with the same quality of education).
Unfortunately, no one really knows when the market will end its fall or at what level the Canadian dollar will reach a bottom. But without a doubt, unlike the bickering down south, focus must be placed on the data if Toronto, and Canada, wants to be protected from whatever the future may hold. The economy as a whole can no longer be ignored because the big banks that everyone loves to hate are now only part of the problem.
Photo by PDPhotography from the Torontoist Flickr Pool.