An opportunity for leadership

The loonie is hovering at the heights of parity with the US dollar and the big banks have been steadily making announcements, increasing their mortgage rates.

The loonie is hovering at the heights of parity with the US dollar and the big banks have been steadily making announcements, increasing their mortgage rates.

We have already heard of hints that Bank of Canada is preparing to raise interest rates in order to prevent the economy from heating up too much.

And the rise in the value of loonie comes despite the fact that the federal budget will remain in the red for some considerable time.

This makes a dangerous concoction.

When your currency keeps getting revalued in the market while your budget deficit shows no sign of reduction, it means it is time to start doing some contingency planning against a possibly turbulent short term future.

But then again, it may not be as bad as it looks.

Obviously, being a mainly commodity economy, the increased value of Canada’s currency stems from the demand in a strengthening global economy, which requires more metals and raw materials for the industry, including oil and gas, and it is only logical to expect this trend to continue with all global economic data pointing to a period of sustained growth in the course of at least a couple of years to come.

What is not obvious is whether or how the government of Prime Minister Stephen Harper will use the emerging circumstances in a rational way to enhance the prosperity of the country.

It does not take rocket science to predict that the increased value of the loonie will make Canadian exports more expensive to importers, thus dealing a blow to the manufacturing side of the economy.

But wise men say every threat can be converted into an opportunity.

This is where good crisis management comes into play.

While Canada’s export capability for manufactured goods may be clipped by the rising loonie, the country will still earn more by exporting minerals and oil, which, in turn, should make up the springboard for job creation and economic growth.

Both the federal and provincial governments might well have an extended window of opportunity to turn the tide and give us a hopeful economic outlook by the end of the summer.

What is required here is statesmanship.

If, instead of being the leader of the nation, Mr. Harper prefers to be the prime minister of the Conservatives and follows the guidelines of his party’s ideology to leave the government out of the economy to the maximum extent possible, it is highly likely that we will miss a good opportunity to quickly restore the economy to the growth mode.

In that case, growth will probably still come, but its pace and strength will be much weaker than it would have been otherwise.