Thank you very much, Mr. Chair.
Good afternoon, everyone. Thank you very much for inviting the Conference Board of Canada to present today. The topic I'm going to be focusing on is the impact of the rise in the Canadian dollar on the Canadian tourism industry.
Just for background information, this is obviously a very important industry for Canada. The balance of payments, just on our export side, is expected to reach about $21 billion by 2011. Obviously, it's an important contributor to economic activity in Canada.
However, it's pretty clear that the imports of travel services are rising more rapidly than the exports of travel services, and that's at least in part because of the increase in the Canadian dollar.
There are other issues as well, such as the western hemisphere travel initiative, which will eventually require Americans, as you know, to hold a passport if they want to get back into the United States. This is going to have an impact, we feel, on the future of U.S. travel to Canada.
Americans are certainly the most important part of the Canadian travel market, in terms of foreigners visiting Canada. U.S. visitors accounted for 76% of all trips by foreigners who stayed more than one night throughout 2006. Last year—a full year of data—for American travellers to Canada, 76% of trips were for at least one night.
Our forecasts, however, suggest that spending by Americans visiting Canada for non-business purposes—so we're really in a tourism context here—will decline by about $1.9 billion per year between 2005 and 2008. By the time you get to 2008, you'd be about $1.5 billion lower in terms of that activity than in 2005. That's in nominal terms, so in real terms it would be even more substantial. This is obviously serious.
It's very hard to replace those American visitors to Canada with visitors from other countries, simply because of the sheer size of the U.S. market.
Obviously, attracting foreigners to visit Canada, particularly Americans, is going to be very difficult, but we have even a greater issue with respect to Canadians leaving to travel abroad, what we call travel imports. We are looking at about a 25% increase in Canadians travelling abroad—in terms of their spending, now—between 2007 and 2012.
If you do the math, the result is that if you look at the external trade deficit on travel, it should go from about $6.7 billion in 2006 to about $9.5 billion by 2012. Over that five- or six-year period, we're looking at a 41% deterioration in that travel balance, a deterioration of almost $3 billion a year. These are important numbers.
In the time left, let me mention that in terms of the sensitivity analysis we do, normally we would argue that a 10% increase in the Canadian dollar versus the U.S. dollar should result in about a 15% to 16% reduction in overnight travel from Americans; it's quite elastic, in fact. But our feeling more recently is that the sensitivity will probably be down now to about the 0.8% to 0.9% range. In other words, a 10% increase in the Canadian dollar should lower U.S. overnight travel by about 9%.
The reason for that is that generally the U.S. doesn't have the same kind of appeal as it would have had in the past. We've seen a lot of retailing giants now show up in Canada, so we're not seeing quite the same sensitivity. But we're assuming, with the recent increase in the dollar, which was about 18% over the last nine months, that Canadian overnight travel to the United States should be up by about 16% as a result of it.
The other side of the coin, U.S. visitors to Canada, is not nearly as sensitive as in the past, but basically we feel there's roughly a 0.5% to 0.6% elasticity. So again, that 18% increase in the value of the dollar over the last nine months should lower overnight travel from the United States by about 6%.
So we're looking at about a 16% increase in Canadians going to the States and about a 6% decline in Americans coming to Canada, and both are going in the wrong direction, if you like, in terms of our balance of payments.
That's just from that increase in the dollar that has taken place over the last nine months. Obviously, there is fallout from the rise in the dollar that took place in the years prior to that.
In the interest of time, Mr. Chair, I'll stop there.