October 1, 2007

Economic Outlook

Fallout from dollar parity coming, economists warn

Suppliers wary of implications for international contracts

VINCE VERSACE

staff writer

A Canadian loonie and an American greenback staring eye-to-eye sets a new landscape for the supply-side of the Canadian construction industry, says one supplier.

“It is a little new to address right now,” says Ian Steer, Aluma Systems Canada, divisional manager. “It is so new the fallout has not begun.”

The climbing strength of the Canadian dollar, which has hovered around par with the American dollar since Sept.19, has raised some early observations concerning the supply of construction products and services between both countries.

“As a whole, parity has its up and down side,” says Jeff Morrison, Canadian Construction Association government relations and public affairs director.

“There are probably more benefits than a direct downside. Supplies and professional services imported from the United States will be cheaper.”

The U.S. dollar has fallen five per cent against the Canadian dollar just in the past month. It is expected to close at even par if not above at any time now.

In the past five years, the U.S. dollar has dropped 37 per cent against the Canadian dollar, notes Alex Carrick, CanaData chief economist.

“For building products manufacturers, this (rise of the Canadian dollar) is something they have been keeping their eye on since 2003,” explains Carrick. “Commodities are now such a large part of our lives and they are volatile.

“It is like trying to play three-dimensional chess.”

Importing productivity-enhancing machinery and equipment will be cheaper thanks to a recent U.S. inflation rate cut, rise in Canadian dollar and the fact most commodities are priced in U.S. dollars, explains Carrick.

“At the same time, because of the commodity price increases, the returns to Canadian resource producers will remain high,” says Carrick.

“This ‘win-win’ situation for Canada, on the resource side, takes some of the sting away.”

Canadian building product manufacturers wanting to export south of the border will face tougher markets, Carrick points out.

Steer, a member of the Canadian Construction Association Supplier Council, says there’s been “no issues” selling a preassembled Aluma System scaffold made domestically and sold in the United States.

Companies like Aluma and heavy machinery rental firms will not see cost increases in the short term because of a strong Canadian dollar, suggests Steer, since they already have inventory on hand.

The Canadian dollar has not only made gains against the U.S. dollar but also the Euro and United Kingdom Pound. As the loonie reached its high against the American dollar it also reached highs against both the currencies across the Atlantic Ocean

The strength of the Canadian dollar in the world markets needs to be looked at as well, believes Steer.

“There is a whole world to be tackled,” says Steer. “Traditionally, international pricing has been placed in US dollars. This parity is still new, but people are starting to question pricing considering the American dollar has lost some value.”

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