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Tourists, expats are loving Canada (and it's not just the cheap loonie)

Briefing highlights

  • Tourism a bright spot
  • Why expats love Canada
  • Inflation holds steady, retail sales up

What's not to love?

Tourists and expats alike appear to be loving Canada.

And while the low loonie is part of it, there’s more to it than that.

Last year was good for tourism, and this year looks promising, too, Royal Bank of Canada said in a study released today.

“Prospects remain bright for 2017 as the country’s sesquicentennial celebrations, and a 375th birthday bash for Montreal, are expected to continue to attract record numbers of foreign visitors,” RBC economist Laura Cooper said.

“International visitors to Canada are up 3 per cent so far this year with those from countries other than the United States accounting for more than one-third of the 2.8 million visitors in the first quarter, a 13-per-cent boost from a year ago.”

Canada’s travel deficit narrowed in 2015 for the first time in almost a decade, then further last year as visitors spent more here than at any time on record as our spending in other countries held firm, Ms. Cooper said.

This was a far different story than that of early 2014, a “low point” for tourism as Americans stayed away, first because of the 9/11 attacks, then the global crisis and then the strong loonie.

The Canadian dollar is now much lower, at about 73 cents (U.S.), of course, and some analysts expect it to sink even more.

The loonie’s tumble amid the oil shock was a “much-needed boost” for tourism, which, while representing just 2 per cent of gross domestic product, has still outperformed the broader economy since that point, Ms. Cooper said.

“It’s no surprise that tourism GDP recorded its strongest annual advance in more than a decade in 2016, when the Canadian dollar reached multiyear lows against the U.S. dollar,” she added.

“Americans typically make up the bulk of tourists to Canada. But Canada is increasingly a destination of choice amongst a broad range of travellers, more so than can be explained by the currency alone.”

Indeed, one in five tourists were non-Americans between 2014 and last year.

Not only was that a record, but almost double the 11-per-cent share of such visitors 10 years ago, Ms. Cooper said, even as the loonie fared well against currencies from countries whose travellers came here in greater numbers.

For example, the number of visits from China and South Korea rose by 164,000, or 23 per cent, last year, and those from Europe by 185,000 or 11 per cent.

“The Canadian dollar weakened against the euro over this period, but for countries like Mexico and the United Kingdom, sharp currency depreciations did not deter residents from coming to Canada in droves,” Ms. Cooper said, also noting the change in Canada to visa requirements for Mexicans.

“Ontario, British Columbia and Quebec attracted the bulk of non-U.S visitors last year: 90 per cent of foreign tourists arrived at these destinations, where the country’s largest airports are located,” Ms. Cooper said.

“But foreign tourists are extending their visits across the country alongside domestic travellers, as evidenced by an uptick in employment in tourism-related sectors.”

For this year, Ms. Cooper cited free admission to Canada’s national parks and other sites, in addition to millions in Destination Canada spending.

“A boost in immigration levels led by a push to attract and retain foreign students and skilled workers may have also piqued the curiosity of foreigners,” Ms. Cooper said.

“The bulk of visitors to Canada are still going to come from the United States, given the geographic proximity and our attractive dollar. But conditions favour Canada becoming a wider draw as well.”

Then there are expats, for whom Canada is also a big draw.

We think we’re paying a lot for housing – and we are – but remember the discount for foreigners.

Indeed, a study this week from ECA International pegged Britain as the most expensive countries for expat middle managers at foreign companies.

Canada was No. 15, up from 19 two years ago and below the average.

“Salaries and benefits packages in Canada for expatriates are lower than some countries because Canada is a desirable place to live and work so doesn’t require large incentives that some other locations in the survey do,” ECA spokesman James Davis said.

“Also, the weak Canadian dollar makes it cheaper for foreign workers,” he added.

“Expatriate standard accommodation rental prices are relatively low by international standards (despite rising prices in most cities) because of the weak dollar. Altogether this makes Canada a cheap and an attractive place for companies to operate and send expatriate staff.”

In Canadian-dollar terms, salaries, benefits and taxes have climbed by 8 per cent since 2014, Mr. Davis said. But measured in U.S. dollars, the compensation package for an expat middle manager in Canada has eased by 6 per cent.

There are some interesting things going on here in relation to Canadian and American travel, noted Bank of Montreal chief economist Douglas Porter.

Even with the lowly loonie, Canadian visits to the U.S. rose almost 5 per cent in the first quarter, from a year earlier, while the number of Americans heading north edged down by less than 1 per cent.

“That’s the first quarterly rise in visits to the U.S. in almost four years, and suggests that despite all the political sound and fury, Canadian travel plans have been barely affected,” Mr. Porter said.

“The deep dive in travel to the U.S. from 2013-2016 was driven first and foremost by the deep dive in the loonie over that stretch (it fell more than 30 per cent in under three years),” he added.

“With the currency more or less holding in a zone in the past year, travel to the U.S. has stabilized and even strengthened a tad.”

All which puts something of a spotlight on Canadian retailers, given the discount for American shoppers. But, in fact, Canadian stores are getting “little additional juice” from the sinking currency, according to senior economist Sal Guatieri, Mr. Porter’s colleague at BMO.

“While the ratio of Canada-U.S. same-day cross-border trips (by auto) is down from almost 5-to-1 in early 2013 (when the loonie last rivalled the greenback), it has steadied at just below 3-to-1 recently,” Mr. Guatieri said.

“This is still much higher than in earlier periods when the loonie was near current levels,” he added.

“Canadian retail prices may need to fall further, relative to the U.S., to improve competitiveness. Or the loonie may need to weaken further.”

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