The Loonie Is Plunging, and Oil Is Dirt Cheap in Canada

The Canadian dollar is continuing its hasty slide towards lows it hasn't seen in more than a decade, as Albertan oil — once a driver for the entire Canadian economy — hits a record low of just $16 a barrel.

The result is a mess, as neophyte provincial and federal governments figure out what to do with a stalled economy. And economists are warning that things won't get better in the short term.

The loonie, as the Canadian dollar is known, could slip below 70 cents against the American dollar for the first time since April 2003, as the Canadian economy takes a beating from low oil prices worldwide. Texas light crude oil was selling at just $31 a barrel on Monday afternoon — a 12-year low — while Albertan heavy crude futures were going for just $16, which is the lowest it's ever seen.

At over $3 per gallon, that means milk is roughly seven times more expensive than Canadian oil.

While a litany of problems are driving down oil prices, everything from over-production from the OPEC oil cartel to a glut in the American northeast, a weak stock market in China, and a lack of oil infrastructure in Canada, the problem might go much deeper.

In previous instances where weak oil exports have hurt the loonie, other aspects of the Canadian economy have picked up the slack.

Related: Canada's Oil Country Is Bleeding Jobs and Suicides Are on the Rise in Alberta

Mike Moffatt, an assistant professor at the Ivey School of Business, in London, Ontario, says that might not happen this time.

"Are we in trouble? The short answer is yes," he says.

Moffatt points out that a Bank of Canada survey of Canadian business, the results of which were published Monday morning, found that industry remained largely pessimistic about the year ahead and that most employers were bearish on hiring new staff.

"Business sentiment has deteriorated," the central bank concludes.

Moffatt points out that when the survey was conducted, North American oil prices were nearly $10 higher than they are today.

"Predicting the future price of oil is a fool's errand. It could go up $25 over the next couple of months," he says. "But it probably won't. There is a very good chance we'll be in a low commodity price world for some time to come."

Conventional wisdom says that a low loonie generally means that foreign investment and exports trend upwards. Reports from Statistics Canada, however, show that exports were largely flat throughout 2015.

Economists like Moffatt, and the Bank of Canada itself, have warned that it could take years for manufacturing and exports to gear up again.

"The short answer is that it takes time for new sales to materialize, a lot of manufacturers don't have a lot of extra capacity and few people are willing to make bets that the loonie will stay low for a long time," Moffatt says.

Watch the VICE News documentary Alberta's Boom Time Hangover here:

One winner from the low dollar is Canada's TV and film industry, as American production companies flock north to film on the cheap.

Golden Globe darling The Revenant and the TV adaptation of Fargo were both shot in Alberta in recent years, as jobs were shed en masse from the province's oil sands.

The Canadian government, however, says it's not worried.

"I'd like to start by saying I'm optimistic," Finance Minister Bill Morneau told a crowd in Halifax on Monday. "The good news is we have a plan."

The freshly-elected Trudeau government will unveil its first budget in the coming months, and it is expected to unveil aggressive new infrastructure spending and tax cuts that it hopes will kick-start investment.

Meanwhile, in Alberta, the left-wing NDP government that won a historic victory last spring is facing skyrocketing unemployment and huge budget deficits that may derail its reform agenda.

Follow Justin Ling on Twitter: @justin_ling