The Canadian dollar fell on Tuesday, with the currency trading at about 78 cents US, its lowest level in more than three months.
A Canadian dollar is worth about 77 cents.
The plunging currency helped to lower the outlook for Canadian consumer spending, which has been a top priority for Prime Minister Justin Trudeau’s Liberals since the federal election.
The Canadian economy added a disappointing 0.5 per cent in the second quarter.
“The weakness in the Canadian dollar was felt in the manufacturing sector,” said Michael Pachter, senior economist at RBC Dominion Securities.
“In terms of services, manufacturing and construction also performed well.
The economy shrank 0.4 per cent, the slowest pace of growth since the end of the 2008 recession.
However, the outlook is better than it was three years ago,” he added.
“The dollar has gained value against the yen, which is an indication of strength in the Japanese currency.
The yen is now around 40 per cent weaker against the dollar than the dollar in the first quarter of 2018.”
Economists were expecting GDP to expand by 2.5-3.5 percent in the final three months of the year, a rate that was in line with forecasts released Tuesday.
Trudeau’s government has been pushing for Canada to move towards a low-tax, high-growth economic model, and is targeting an economic expansion of 2.4 percent for the full year.
It is currently forecast to grow by 0.7 percent.
While the weak currency helps to fuel the Canadian economy, it also puts more pressure on the federal government to increase the federal deficit to a manageable level.
The federal government, which takes a balanced budget, is currently projecting a deficit of about $10 billion in 2019-20, up from $5 billion in 2016-17.
In 2019-2020, the federal budget deficit will be $5.9 billion, or nearly one-third of the $50.4 billion projected by the NDP.
With the economy weak, the Conservatives are likely to face an uphill battle to balance the budget by the time the 2019 election is held.
On the fiscal front, the Conservative government has announced it will introduce new tax cuts and increased transfers to help lower the deficit.
In 2019-2019, the government plans to reduce the rate of income-splitting to 30 per cent from 35 per cent.
If the NDP’s fiscal plan becomes law, the current $10-billion deficit would be reduced to $7.5 billion, and the deficit would only increase to $12 billion by 2020-21.
At the same time, the Liberal government is proposing a $2-billion tax cut for middle-class Canadians.
According to Finance Minister Bill Morneau, the new tax cut would help pay for the cost of the Conservatives’ promise to phase out corporate tax rates to 35 per, and then gradually gradually to 15 per cent by 2022.
The new income-transfer scheme will bring in $2.8 billion in savings annually.
But critics say the Conservatives plan will do little to reduce deficits and raise revenue.
Despite the weaker Canadian dollar, the NDP has not yet released its fiscal plan, which could complicate the Conservatives efforts to balance their books.
Canada’s economy has been hit by a combination of factors.
Its economy shrinks in every month, and in most years the economy will grow by about 0.6 per cent for the year.
When it comes to the cost-of-living adjustment, the Canadian government has raised the minimum wage to $15 per hour, and introduced a $15-per-day tax credit for low-income earners.
As of April, the average cost of living in Canada was $14.20, according to the Canadian Centre for Policy Alternatives.
Canadian consumers are paying more for their products.
In February, the median household income for Canadians was $51,400, down from $55,600 in 2017.
Last year, the CPI-U was a better gauge of inflation than the other major measures, but it still was higher than inflation.
