The value of the loonie has fallen around 20% relative to the U.S. dollar in the past two years, and 2016 could be a good year for Canada’s tourism industry to reap the benefits of American travellers turning their attentions north of the border.
The number of travellers from the States increased by 1.6 million in 2015 compared with 2014, and this year should see a similar jump in visits, according to a TD Economics report released February 8.
“Since 2002, cross-border flows of travel and spending have been heavily tilted toward the south,” TD said in its report. “But a plunge in the Canadian dollar is turning the tables by curtailing Canadian visits to the U.S. and stimulating more American visits to Canada.
“American spending in Canada is poised to rise to Cdn$9.6 billion – the highest level in over a decade.”
According to the report, in 2002, the amount spent by Canadians in the U.S. was roughly about the same as what Americans spent in Canada. This changed dramatically in the next decade.
“By 2013, a whopping gap of nearly Cdn$17 billion was recorded, owing to a combination of strong growth in short and longer haul stays by Canadians stateside and a dramatic decline in U.S. visits to Canada,” the report said.
“Put another way, total American outlays in Canadian malls, hotels and restaurants amounted to only 30 cents of each dollar spent by Canadians in the United States.”
The trend has been reversing since 2013, however. As Canadians have been paying as much as a 30-40% premium on goods and services in the U.S. as the value of the loonie has plunged, travel to the States has fallen considerably.
“With the slide in the loonie likely to continue this year, we expect that the cross-border spending deficit will narrow for a third straight year in 2016 – to about Cdn$11 billion,” the report said.
“This reversal in cross-border spending flows will deliver benefits to the Canadian economy. In addition to the lift provided by increased U.S. traffic, a significant share of the money that would have been spent by Canadians in U.S. destinations is no doubt being redeployed in Canada.”
Longer stays by Canadians in Canada have remained strong, however, TD said. This includes stays by ‘snowbirds,’ which largely consists of Canadian retirees spending half the year in the U.S.
“Many Canadians will be inclined to keep a hold of their existing U.S. properties, some will rent and a few will still opt to purchase real estate in prime U.S. markets for lifestyle reasons or to profit on expectations of further home price appreciation.”