Fortunately, such is not the case. We should, however, be prepared to see the current account in deficit for some time. The current account is a record on international payments for the purchases of goods, services and resources. When the current account is in deficit, it means that the value of our imports exceeds the value of our exports. If this is largely due to a trade deficit, one component of the current account, then measured GDP will be lower.
Our exports have fallen because the economies of the two largest countries in the world, the US and China have experience slower growth. If we built washing machines, this would be a problem because we would have to sell them for less. But Canada is a resourced based economy. By not selling a tree, or rock or barrel of oil, it doesn't depreciate. Our wealth does not fall, only our income and only temporarily.
Our imports have increased because Canada escaped the financial meltdown experience in the US, Europe and Japan. Our banks are stable. Our recession was not as deep and did not last as long. Our housing market didn't collapse and we didn't panic. Americans had it much worse and because of the decline in wealth and income, they didn't travel. Airfares and hotels rates in the US fell and we took advantage of them. Our imports are higher because we travelled.
The recent decline in the Canadian dollar is a result of the current account balance. Fewer people needing Canadian dollars to buy our trees and Canadians selling dollars to travel. The Bank of Canada allows the dollar to fall. This will reduce the price of our exports and increase the price of our imports providing an automatic stabilizer.
Our currency is falling because of market forces, as it should. The yuan, and now they yen are undervalued as a specific policy to encourage exports.
It will self correct.
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