David Rosenberg: How the economy could cash in on a ’Buy Canadian’ craze

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Everybody seems so bullish on the Canadian dollar, as it sits around 76 cents U.S., and the happy crowd on Bay Street are crowing about how well the country is handling the pandemic (true), howmuch better the economy north of the border is faring (overstated) and the wonderful job Ottawa has done on the fiscal front (seriously, all it’s been is a case of throwing spaghetti against the wall and seeing what sticks).

The move in the loonie has zero to do with anything Canada. It is 100 per cent about the broad weakening in the greenback. Proof? Over the past two weeks, there has been precious little change in the Canadian dollar index excluding the U.S. dollar, and it’s actually a tad weaker than it was a week ago.

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But one thing that might help the country’s economy, amidst the border closures and travel restrictions due to COVID-19, is the real potential to see a new “Buy Canadian” theme emerge among Canadian consumers. Whether it’s opting for a “staycation” at home or touring domestically, buying Canadian-made goods or local produce, this short-term shift in consumer preferences could potentially end up helping out GDP growth to some extent. After all, household expenditures represent 56 per cent of GDP — not a small share of the pie.

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To be sure, given the severe contraction in economic activity during the lockdowns, any boost to local spending will only soften the blow; it won’t fully compensate for what has been lost. But it is still worth looking at where the shift might occur as it could spur a stronger recovery in these sectors than would otherwise be expected.

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There are two broad areas where a Buy Canadian trend could start to push the needle. The first is domestic tourism. From February to April this year, the number of Canadians leaving the country essentially fell to nothing — reflected in the 97 per cent collapse in the number of Canadians returning from abroad (from around five million per month to less than 150,000).

If you can’t go to the Caribbean, why not camp or visit cottage country and bring your own booze?

According to the UN World Tourism Organization, Canadians are the eighth top tourism spenders in the world, spending US$33 billion abroad in 2018. That is a lot of purchasing power confined to vacationing and shopping domestically.

Tourism expenditures in the first quarter by Canadians in Canada did fall nearly 13 per cent quarter over quarter, but certain categories were spared much of the carnage: interurban bus transport (-1.5 per cent), vehicle rentals (-5.4 per cent) and pre-trip expenditures (-8.3 per cent) declined the least as people shifted to vacationing by road rather than by air (and bought luggage for a new type of travel, perhaps?).

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At the same time, spending increased on things such as alcoholic beverages and tobacco (four per cent) and equipment for sport, camping and open-air recreation (five per cent). If you can’t go to the Caribbean, why not camp or visit cottage country and bring your own booze?

Indeed, demand for real estate in Canada’s cottage country has increased over the summer, according to local realtors, due in part to the growth in city folk working remotely as well as vacationers looking for a local alternative to international travel.

The shift could potentially benefit boutique hotels in more off-the-beaten-path locations as well as spas, both of which are potential alternatives to expensive long-distance voyages. August is the most popular travel month in Canada, so it will be worth revisiting the numbers in the fall (since the data lags by a few months) to see how these spending patterns play out.

The second area that could see local-spending support is agriculture.

Back in January, the Canadian government set the groundwork for a Buy Canadian promotional campaign for agricultural products to be rolled out over the next five years. The campaign comes after waves of protectionist trade action by the United States and provides $25 million to rebrand Agriculture Canada and the Canadian Food Inspection Agency (as well as placing stickers on Canadian-made products to build awareness).

This is an area where import substitution is possible and where many Canadians have expressed an interest in shopping locally, due to the trade actions on the one hand and concerns about global warming on the other. Farm, fishing and intermediate food products represented 2.7 per cent of Canadian imports ($17.2 billion) in the first quarter of 2020, and, remember, this figure is subtracted from the GDP tally so substituting Canadian-made products for imports would also help lift GDP.

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Now, we know that this is a time when Canadians are tightening their belts and increasing their precautionary savings, so we won’t see all of the US$33 billion in international tourism spending redirected at home. But even a share of this figure spent on staycations could provide an upside surprise to Canada’s growth.

The same can be said for imports of agricultural products; while we fully expect that Canadians will continue to purchase produce from abroad, a shift in consumption patterns based on trade wars and global warming concerns could help soften the impact of the COVID-19 lockdowns on a Canadian industry that is struggling under disrupted supply chains and labour immobility.

To the extent that a Buy Canadian theme emerges over the short run, we see pockets of optimism and potential for GDP to get a small boost from shifting Canadian consumer preferences.

With contributions from Ellen Cooper.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. You can sign up for a free, one-month trial onhis website.