Exporter Situation to Worsen Before Improving

(Export Development Canada)

The strong Canadian dollar and slower consumer spending in the U.S. and globally will make conditions even more challenging for many Canadian exporters in 2008, according to the quarterly Global Export Forecast released today by Export Development Canada (EDC).

“2008 will be the third year in a row of essentially flat export shipments,” said Stephen Poloz, Senior Vice-President of Corporate Affairs and Chief Economist. “But even that misses an important story, which is that many Canadian exporters have been trying to maintain export sales even as the rising dollar has squeezed their profit margins.”

The value of total export sales is forecast to grow by 1.5 per cent in 2008, after price-induced growth of 3.7 per cent in 2007. World economic growth will slow further to 4.5 per cent after 4.9 per cent in 2007 and 5.4 per cent in 2006, as U.S. weakness spills over into both major and emerging markets.

U.S. consumers are coming under increased stress as the housing recession spreads to the broader economy. The financial market turbulence of mid-2007, itself a symptom of weakness in the U.S. housing sector, is combining with the lower U.S. dollar to slow consumer spending in Europe and Japan.

Despite their significant growth in recent years, emerging markets remain highly dependent on exports of consumer goods to the major economies. While the impact of slower world demand will not be immediate, it will become increasingly evident through 2008. Global market turbulence will be felt to some degree in all emerging markets, but the riskiest markets will be more acutely affected as creditors recalibrate risks and adjust their exposures.

Canadian economic numbers have remained strong thus far and strong global demand for commodities, resource-based intermediate goods and agri-food products has boosted prices and the value of Canadian exports in 2007. As the world economy loses momentum, commodity prices will retreat, and this will lead to a softening of the Canadian dollar through 2008.

Although the outlook for oil prices, and therefore the Canadian dollar, remains highly uncertain, it is expected that lower oil prices and rising global risks will cause a general strengthening of the U.S. dollar, and a decline of the Canadian dollar to less than 90 cents by the end of 2008.

The outlook remains good for some of Canada’s export sectors. Export growth will hold up well in such sectors as agri-food, fertilizers, energy, aerospace and machinery in 2008. In contrast, sectors such as consumer goods, ores, metals, chemicals, plastics, rail equipment, telecom equipment and automotive products are forecast to be weak. Growing geographic diversification in Canadian exports is expected to continue throughout the forecast period. Exports to the developed world are forecast to rise by less than 1 per cent in 2008. Export growth in emerging markets is projected to reach 11 per cent, down from 24 per cent in 2007.

In 2007 there has been significant variation in export growth among the provinces. Those provinces with a large share of energy, mining or agri-food in their export mix are performing well above the national average. Those provinces relying more heavily on manufactured goods, particularly autos, telecom equipment and consumer goods, have experienced much slower export growth over the past year.

Provincial export growth will again vary widely in 2008. Saskatchewan will lead the way, with a 12 per cent increase. Decent growth rates of 7 per cent are projected in Manitoba, 6 per cent in New Brunswick, and 5 per cent in Newfoundland and Labrador and Prince Edward Island. An increase of 4 per cent is expected in Alberta and 3 per cent in Nova Scotia. British Columbia will grow by a modest 1.7 per cent. Ontario’s exports are expected to decline by 1 per cent, and a 1.4 per cent decline is forecast for Quebec.

“Preparing for slowdown, and predicting its duration is never easy,” continued Mr. Poloz. “But there are good fundamental reasons to believe that the global economy will avoid recession. On balance, the world enjoys a far sounder structural platform than in the past, putting it in a much stronger position to rebound from a weak period and then revive in 2009. The big unknown is whether the U.S. consumer will stabilize. If not, Canadian exporters could face noticeably weaker conditions than we are forecasting.”

EDC’s semi-annual Global Export Forecast addresses the latest global export conditions including perspectives on interest rates, exchange rates as well as export strategies to help Canadian companies minimize risk. It also analyzes a range of downside risks for which exporters should be prepared. The Forecast is available on EDC’s website.

EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 6,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and is a recognized leader in financial reporting, economic analysis and has been named one of Canada’s Top 100 Employers for seven consecutive years.