Ontario Exports to Rise Moderately in 2009 after Double Digit Decline in 2008, Says EDC

(Export Development Canada)

Ontario’s export growth is expected to rise by a moderate 3% in 2009 after a forecasted 14% decline in 2008, according to a provincial export outlook by Export Development Canada (EDC).

‘Ontario will have a tough go through this year and 2009 given the importance of the auto and industrial goods sectors on its export picture, both of which are faltering under the province’s heavy connection to the U.S. economy,’ said Peter Hall, Vice-President of Economics and Chief Economist. ‘In 2009, while volumes are not expected to fully rebound, export revenues will get a slight boost from the weaker dollar.’

The motor vehicle sector accounts for approximately 37% of Ontario’s international exports. American light vehicle sales are forecast to remain below 13.5 million units over the next 18 months, and the resulting production cutbacks cause passenger car exports to drop 26% in 2008. Accordingly, exports of auto parts are forecast to decline 23% in 2008. In 2009, volume shipments of both cars and auto parts are forecast to increase by only 5%, but the value of these exports could increase moderately because of an expected weaker Canadian dollar. However, increased competition from international low-cost producers will curtail increases in auto parts producer prices.

The export outlook for industrial goods sector, which accounts for 30% of Ontario’s international export picture, is forecast to decrease by 7% and 4% in 2008 and 2009, respectively. The highly cyclical nature of the chemicals and plastics segment of this sector and weakness in metals manufacturing will be the main reasons for the decline. Global demand for metal ores remains solid thanks to non-U.S. export destinations such as the U.K., Norway and China.

Although the second half of 2008 and 2009 will clearly be a very tough period, the evolving global supply chain presents opportunities for Ontario exporters, particularly manufacturers of high value-added intermediary and final goods. Mexican light vehicle production has been rising steadily over the years and presents an opportunity to tap into for auto parts suppliers. Larger parts suppliers such as Magna and Linamar continue to seek out joint ventures in fast-growing emerging markets.

Canadian exports are forecast to grow by 2% in 2008 before declining 1% in 2009. Nationally, economic growth is expected to grow by 0.9% in 2008 with a slight upturn to 1.4% in 2009. Internationally, EDC is forecasting a 3.8% growth rate in 2008 and 3.3% 2009. EDC’s Global Export Forecast is available here.