The Canadian dollar may need to fall to the lowest levels in at least 15 years to allow exporters to drive the nation’s expansion, according to CIBC Capital Markets.

Given the limited scope of relying further on mortgage and consumer debt, Canada will need to produce better outcomes from exports and business spending to fuel growth, CIBC economists Avery Shenfeld and Royce Mendes said Tuesday in a report. But relatively weak productivity is hampering the nation’s businesses, making them higher-cost producers than their U.S. counterparts, they said.

The end result may be slower growth compared with the U.S., which will keep the Bank of Canada from raising rates as high as they are south of the border and lead to a weakening of the country’s currency. The Canadian dollar may need to fall below $1.40 per U.S. dollar in order to make firms more competitive.

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“If that remains the case, we’ll either need a long period of underperforming wages and an even weaker Canadian dollar if trade is going to take the reins of growth,” Shenfeld and Mendes said. “Don’t be surprised to see [U.S.] dollar-Canada sport a 1.40 handle again in the next five years as the Bank of Canada is pressed to set interest differentials at a level that will give us the currency we might need to bring exports back to life.”

Record Lows

Canada’s currency last traded consistently below $1.40 against the greenback in the period between 1998 and 2003, when weak commodity prices pushed it to record lows. So far this year, the loonie has averaged about $1.33 per U.S. dollar. CIBC predicts the currency will drop to $1.36 by the end of 2020 before continuing its decline. The lender doesn’t publish actual forecasts beyond 2020.

Contrary to CIBC’s call, many analysts expect the Canadian dollar to strengthen over the next year. The median estimate of analysts surveyed by Bloomberg News in recent weeks is for the dollar to average $1.26 per U.S. dollar in 2020.

The CIBC report acknowledged Canada’s economy has done relatively well up to now, but that’s due to household debt accumulation, which will restrain domestic demand in the future. The authors found Canada’s export sector has been underperforming compared with the U.S. going back to 2005, largely because of weak productivity.