Strong dollar blamed for soaring travel deficit

OTTAWA - Canada's strong dollar has contributed to a more than sixfold increase in Canada's travel deficit and there's no relief in sight, a report prepared for the Canadian Tourism Commission suggest

OTTAWA – Canada’s strong dollar has contributed to a more than sixfold increase in Canada’s travel deficit and there’s no relief in sight, a report prepared for the Canadian Tourism Commission suggests.

Last year, $10.2 billion more flowed out of the Canadian economy than into it as a result of such spending, continuing a steady increase from what was just $1.7 billion in 2002, the year before the loonie began its record rise to parity from less than 65 US cents, the report released by the tourism commission notes.

“What’s more, with the Canadian dollar expected to remain close to current levels over the entire forecast horizon, the travel deficit is expected to continue to widen,” it says.

The strong dollar, while Canada a more expensive place for foreigners to visit is also making international travel more affordable for Canadians, it notes. “Also, by encouraging conference planners to relocate events to destinations with weaker currencies, the high dollar may also have an adverse effect on business travel.”

CIBC World Markets, in a separate commentary on the travel deficit, noted the weak U.S. economy and new border security are – and will continue – to deter travel here by Americans, who account for the lion’s share of foreign visits here.

“Weather will always beckon Canadian travellers to warmer climes, but a near-parity Canadian dollar, and a U.S. economic slump, has put a huge dent into Canada’s ability to attract American tourists,” CIBC said.

“Judged by data on the number of travellers crossing each way, the travel deficit does not seem to have worsened much further in the second quarter,” it said. “But that pause may not last given Americans’ money troubles, and new passport requirements for those crossing by car.”

Statistics Canada on Thursday reports on the overall second-quarter current account balance, which includes the travel deficit as a part of the chronic shortfall in services trade as well as the offsetting and usually larger surplus in merchandise trade.

“Overall, we expect the current account to post a surplus of roughly $7.8 billion in the quarter,” said CIBC World Markets economist Krishen Rangasamy.

The conference board, meanwhile, notes that an offset for Canada’s domestic tourism industry to the slump in foreign visitors here and the increased flow of Canadians abroad, is the relative health of the Canadian economy, which encourages Canadians to travel more within Canada as well.

“Domestic tourism spending remains strong, bolstered by solid growth in disposable income and strong labour markets,” it says. “Tax cuts continue to boost disposable income among Canadians and bolster corporate profits, helping to fuel growth in both leisure and business travel.”

“However, given the strength of the Canadian dollar, it has become clear that not all of the increase in Canadians’ travel budgets will be spent here, but instead will be used for trips going to the United States or other international destinations,” it says.

The strength in the domestic economy, meanwhile, is creating labour market bottlenecks for the tourism industry.

“The unemployment rate among many tourism industries has approached or dropped below record lows in nearly every provinces,” it says. “Labour market tightness is also exerting upward pressure on wages in the sector and is hurting the sector’s profitability.”

And that profitability has already been undermined by the slump in tourism travel from the U.S., it says, noting that industry pre-tax profits last year fell 7.1% last year to $1.1 billion.

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