04 Apr
According to a Reuters analysis, the Bank of Canada has lost the strength of their currency against inflation due to the geopolitical conflict between Russian and Ukraine. This conflict has resulted in the increasing prices of several commodities that are being imported from Russia and Ukraine. Especially, the price for crude oil which has spiked in a significant manner, resulting in increasing prices of other linked commodities.
The resulting oil crisis has caused the Canadian dollar to decouple from its traditional commodity partner. Adam Button had highlighted that oil is not the driver of the Canadian dollar as it used to be, and that the era of ‘drilling’ is over.
In order for Canada to combat inflation in an effective manner, analysts have recommended that Canada does not need to increased stimulus, rather it requires more investment from both the government and businesses in order to fulfill the supply and demand of products and services in various markets of Canada. Furthermore, Canada is already in the position of a consumer-led recovery, and this recovery can be sped up if a greater number of investments are made for effective sustenance.
Tiff Macklem, the Governor of Bank of Canada, said, “To sustain a strong consumer-led recovery, you need investment. Whether it is businesses or governments, what we need is more focus on building that supply capacity. Demand is now looking self-sustaining,”. He also added that the current inflation rate of 5% is well above the Bank’s target and that it is imperative to focus on productivity. It has become essential that businesses assist in increasing productivity by investing in the latest technology and innovation for the purpose of boosting efficiency.
On the other hand, Adam Button revealed that Canadian companies have adopted strict control of their capital which has resulted in these companies being reluctant to spend big in oil after the price crash during the beginning of the pandemic. Further adding on, analysis conducted by Reuters revealed “Investors are demanding strict capital discipline, while environmental opposition to new fossil fuel projects and the Canadian government’s plan to cap carbon emissions are also deterring growth.”.
Moreover, it is also essential to highlight that the US has seen stronger employment rebounds, however, Canada’s productivity growth still lags behind. The reason for this is linked with extensive public health restrictions and lower investment of businesses. Although, the pandemic has provided the country and its businesses significant opportunities to procure digital investments and invest in digital technology, the capitalization on these opportunities is still low.
However, there are still opportunities available from which benefits can be reaped, the consumer demand is increasing and, in the US, the demand for Canadian export is rising as well. This has led to a strong increase in investment intention, which is at the highest level since 1999.
