Energy Prices Only Lift To Exports This Year Before Decline In 2009, Says EDC

(Export Development Canada)

Canada’s total exports are expected to jump by 4.2% in 2008 as a result of soaring energy prices, according to a Global Export Forecast issued today by Export Development Canada (EDC). EDC forecasts export earnings to decline by 1 per cent as key commodity prices pull back in 2009.

“Since our Spring Global Export Forecast, there hasn’t been much good news for Canadian exporters. Losses due to the U.S. sub-prime crisis and its spill over effects into Canada continue to mount, the impact of soaring commodity prices upon consumers continues to increase, and proof of slowing global production is rampant,” said Peter Hall, Vice-President and Chief Economist for EDC. “The gain of 4% in exports in 2008 is actually an energy price story, but when all price effects are removed, Canadian exports are actually on track to tumble by 4% this year.”

EDC expects the Canadian dollar to trade near parity with the U.S. dollar during the summer period before pulling back by year-end, trading in the USD 0.94 to USD 0.97 range during the first half of 2009. The forecast for the currency is largely based upon an expected decline in the price of oil through 2009. The outlook sees crude prices sinking below USD 100 per barrel by the end of this year, and averaging USD 84 per barrel in 2009. Bolstered by higher prices for natural gas, Canada’s energy exports are expected to rise by almost 40% this year, before falling 7% in 2009.

“While EDC recognizes that global supply and demand for crude is tight, we sees signs that a large price correction is on the horizon”, Mr. Hall continued. “On the demand front, growth expectations are likely to moderate as the global slowdown spreads and oil price subsidies in emerging markets are scaled back. On the supply front, the Energy Information Administration is already forecasting a doubling of OPEC surplus capacity, to 4 million barrels per day in 2009, and non-OPEC supply gains of 1 million barrels per day.”

EDC’s forecast noted that a significant portion of the recent spike in oil prices is the result of speculative investors seeking safe haven from a falling U.S. dollar. EDC’s forecast also noted that the exchange rate between the U.S. dollar and the Euro is more tightly linked to the price of oil now than in the past. EDC believes that when the U.S. dollar stops falling against the Euro, speculators will exit crude and prices will fall accordingly.

On a sectoral basis, robust global demand for grains and high prices should help buoy the agri-food and fertilizer sectors. Exports of industrial commodities continue to benefit from soaring prices, but an expected correction in 2009 should pull earnings down. Weakness continues to be concentrated among forestry, automotive and consumer goods – areas that rely heavily on the struggling U.S. market. The expected drop in the Canadian dollar, however, will provide some relief in 2009. Read the complete press release here.