Exporter Jitters Deepen

(Export Development Canada – Peter G. Hall)

For most Canadian exporters, 2008 will be a year of red ink. Few exporting industries are exempt from the recession currently hitting the trade sector, which is weighing heavily on overall economic growth this year. Getting out of this predicament depends on a lot of factors, not the least of which is the fear factor. How are Canadian exporters feeling about their prospects?

Twice a year, Export Development Canada surveys Canadian exporters to gauge their confidence. The most recent survey was conducted during April and May, and the results are sobering. EDC’s Trade Confidence Index (TCI) tumbled to 66.1, a second successive drop and a new all-time low for the 8-year-old series. The decline over the last year is a marked departure from the narrow range the Index has fluctuated in since 2003.

Exporters were most worried about global economic conditions in the recent survey. Last fall, less than a third of exporters expected global conditions to worsen. This spring, that number shot up to 51%. Only 9% of those surveyed expected improved conditions, the smallest share of optimists on record. The results are hardly surprising, given deteriorating economic data, runaway commodity prices and an international financial sector that is still finding its feet.

Worries weren’t confined to the international economy, though. In the past few years, many exporters have relied on Canada’s strong domestic economy for relief, but the effects of this antidote seem to be wearing off. In fact, those surveyed have never been more pessimistic about the domestic economy, with 42% expecting conditions to worsen, up 10 percentage points since last fall. Just 11% expected the economy to get better, again, the smallest share on record.

These results suggest that exporters expect an extended drought. Even so, the survey holds hints of hope. First, most respondents feel that international sales have hit bottom. Almost half of those polled believe that international sales will improve in the near term, while the share expecting worse conditions fell 10 percentage points to just 15%. Second, perceptions of international trade opportunities brightened. Pessimism spiked in the Fall, 2007 survey, only to be reversed in the spring; 77% of exporters now expect similar or improved near-term opportunities.

A third glimmer of hope – perhaps wishful thinking – is exporters’ view of the Canadian dollar. Most believed that the dollar’s ascent will be checked. Just under a quarter of exporters thought that the loonie would keep climbing, down sharply from 52% a year ago, while the remainder expected a static or declining currency. As such, exporters’ top coping strategy is simply to ride out the storm, absorbing the loss. Fewer are passing on higher costs; their ranks shrunk from 27% to just 18% in the past six months. Not surprising, given intensifying global competition.

Among industries, only the oil and gas/mining and transportation sectors bucked the overall trend in confidence. The index for light manufacturing fell the most, and is now ranked second-lowest.

The bottom line? Make no mistake, the latest TCI results are sombre. But the lingering scent of hope, amid very trying times, is inspiring.