In a sobering message titled “The Great Hesitation”, in the latest release of Export Development Canada’s Global Export Forecast, VP and Chief Economist Peter Hall writes, “Growth remains elusive. […] Performance in the automotive, forestry, agri-food and consumer products industries is expected to continue contributing to overall strength. The outlook pegs no growth this year, rising to 3 per cent in 2017. Fallout from the uncertainty created by anti-trade sentiment in the US and the UK poses the biggest threat to Canada’s near-term export outlook. […] the main message being one of caution during a global inflection point.[…]
Amid the world’s hesitation, it’s a great moment of opportunity.”
Canada Export Outlook: Export Development Canada
Canadian businesses can expect to see 3 percent growth in exports of goods and services next year following a downbeat 2016 that saw exports stall, according to a new global export forecast released Wednesday by Export Development Canada (EDC).
Canada’s lacklustre performance this year and next masks the success stories. In 2016, the automotive and consumer goods sectors did very well, each seeing a second successive year of double-digit growth. However, this good news story was completely offset by sharp declines in energy exports, fertilizer sales, and shipments of metals.
EDC believes that the modest rebound facing Canadian exporters in 2017 will be led by a sharp recovery in the energy sector, as prices return from significant lows. Decent gains will also be seen in the aerospace, fertilizers and consumer goods industries. Exports of services will also be impressive, rising by 5 per cent in 2017 (after 4 per cent in 2016). EDC’s forecast notes that the uptick in the services sector will be driven by tourism, financial, and technology services.
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The uneven growth we are seeing this year will continue into 2016. Primary industries are still reacting to the plunge in commodity prices, but with prices now up from early-year lows, 2017 shipments should do better. Robust U.S. demand and a subdued Canadian dollar will continue to boost key manufactured products.”
– Peter Hall, Chief Economist, EDC
UNEVEN GROWTH IN EXPORTS
While the “populous tide” appears to have turned against global engagement, fanned no doubt by anti-trade rhetoric coming out of the U.S. election campaign, demand for products worldwide still seems to be spreading.
Uneven growth in exports will continue through 2016 but should become more steady in the coming year.
“Primary industries are still reacting to the plunge in commodity prices, but with prices now up from early-year lows, 2017 shipments should do better,” Hall said in a study released Wednesday. “Robust US demand and a subdued Canadian dollar will continue to boost key manufactured products.”.
Efforts by Canadian companies to grow outside the country are expected to boost exports of goods and services by three per cent overall in 2017, supported by gains in exports to emerging and developed markets.
HANDFUL OF TROUBLING FACTORS
A handful of factors, including trouble in the oil and gas industry has led to a lackluster performance for Canadian exporters this year—but despite the stumble, Export Development Canada expects exporters to get back on their feet next year with stronger growth.
“Primary industries are still reacting to the plunge in commodity prices, but with prices now up from early-year lows, 2017 shipments should do better,” said Hall. “Robust US demand and a subdued Canadian dollar will continue to boost key manufactured products.”
In its latest forecast, EDC said it anticipates Canadian businesses will post three per cent export growth in 2017—just below the 3.4 percent growth expected for the global economy. With energy prices recovering from their recent lows, the trade financier expects the oil and gas industry to lead the way, while the aerospace, fertilizers and consumer goods industries will also post “decent gains.” A recent bright spot in the Canadian economy, the service export industry, is also expected to record a five percent 2017 gain.
Among large emerging markets, EDC forecasts India will lead the pack with 7.4 percent export growth, followed by China at six per cent.
Muted Forecast
The greatest threat to the export outlook is the alarming rise in anti-trade sentiment. The Brexit vote puts at risk the world’s largest trading bloc, while the US election has revealed widespread discontent with America’s current trade architecture.
“After years of slow growth, consumers and businesses around the globe are frustrated,” said Hall. “You can’t blame them. Seven years seems like an eternity when you’re waiting for your first real job, or your next one. But lashing out at globalization is really an attack on one of the key economic remedies.”
“With a populous tide turning against global trade, businesses are hesitant to make major moves, opting instead to ‘wait and see’,” added Hall. “Despite the potential for growing demand that we see in key global markets, they could be shying away from some of the best opportunities in years.”
The ongoing progress in the US economy coupled with the weak Canadian dollar will spur Canada’s export performance in 2017. For instance, aerospace, fertilizers, and consumer goods will all post solid growth next year, all fuelled by the recovery of US demand.
Another bright spot for Canada is that energy-rich provinces can expect a 12 per cent rebound in energy export growth in 2017. This increase will be supported by on- going recovery in oil prices and an increase in volumes compared with 2016, when production was negatively affected by the Alberta wildfires.
Globally, EDC forecasts that global GDP growth will be 3 per cent this year and 3.4 per cent in 2017. GDP growth in Canada’s primary trading partner, the US, will rise from 1.5 percent in 2016 to 2.4 percent in 2017. Among key emerging markets, China is decelerating but still expected to register over 6 percent growth. India, however, will be leading the pack with expected growth of 7.4 percent in 2017.”
“The downward revision from the last forecast is directly related to anti-trade developments,” said Hall. “But the good news is that for now, fundamental drivers of the world’s top economies are strong. If they end up boosting near-term activity, now may be the best time for shrewd Canadian companies to take advantage of opportunities where their foreign competitors are abandoning them.”
SUCCESS STORIES
Efforts by Canadian companies to grow outside the country are expected to boost exports of goods and services by three per cent overall in 2017, supported by gains in exports to emerging and developed markets. That boost come after a dismal performance so far this year that “masks the success stories,” according to EDC.
Exports of consumer goods, fertilizers and aerospace parts are forecast to growth significantly next year — thanks to a pickup in US demand, in particular. Energy exports are also forecast to rise in 2017 by up to 12 per cent as oil price continues to recover from the collapse two years ago.
Regardless of the November 8 election outcome in the United States, the outlook for that economy is still up- beat and a weak loonie should finally help turn the tide for Canadian exports, according to the EDC — good news for our economy, which has stumbled and is now relying heavily on government spending, and big budget deficits, to eke out growth.
Canada has pursued dozens of free-trade agreements since the global economic downturn, aimed at diversifying goods and expanding markets.
Among them, CETA and the Asia-Pacific Economic Co-operation pact, which has been slowed by protectionist concerns that are shared by US presidential candidates Hillary Clinton and Donald Trump.
“After years of slow growth, consumers and businesses around the globe are frustrated,” Hall said in the study.
Canada Provincial Export Forecast: Export Development Canada
Canadian merchandise export growth is forecast to remain at in 2016, with contractions in energy, fertilizer and metals-exporting provinces overshadowing positive momentum from provinces with larger manufacturing sectors. In 2017, the baton will again pass to the energy and metal and ore exporters. Gradually recovering prices for these commodities will nudge Canadian exports to a modest 3 percent gain.
Exports in almost every one of Canada’s energy-rich provinces will shrink in 2016. Saskatchewan and Alberta’s exports will be hardest hit, losing 15 percent and 10 percent, respectively, with Saskatchewan doubly penalized by collapsing fertilizer prices. Low oil prices will also drive export contractions for Newfoundland and Labrador and New Brunswick. Only British Columbia’s more diversified exports will escape the same fate and grow 3 percent.
The outlook for manufacturing provinces and Atlantic Canada’s non-energy exporters is more positive for 2016. Ontario will lead with 7 percent growth driven by rising volumes in auto and other manufacturing. For Quebec and Manitoba, growth will be a more modest 1 percent.
Both provinces will be held back by low metals prices that mask strong results in manufacturing, chemicals and plastics. Nova Scotia and Prince Edward Island are benefiting from high lobster prices and will record export growth of 3 percent and 2 percent, respectively, in 2016.
In 2017, exports from the energy-rich provinces will recover in tandem with oil prices. Newfoundland and Labrador will lead the charge with a 12 per cent export gain, boosted further by increased mining output. Following closely, Alberta exports will expand 10 per cent due to oil and gas price increases and higher output following last year’s wildfires. In Saskatchewan, energy and fertilizers will power a 5 per cent export expansion. New Brunswick and British Columbia, which have sizable forestry sectors, are forecast to lag with export growth reaching only 3 per cent and 2 per cent, respectively, as the US will likely impose softwood lumber duties.
Ontario is set to trail all the other provinces with 0 percent export growth in 2017; the auto sector lacks capacity to increase exports further. In Quebec, aerospace manufacturing will lift the province to another 3 percent expansion. Meanwhile, exports from highly diversified Manitoba will increase by 3 percent, benefiting from increased demand for pharmaceuticals and buses. PEI exports, too, will rise by 6 per cent thanks to pharmaceuticals sales and aerospace. Finally, Nova Scotia exports will remain nearly at as neither agri-food nor motor vehicles will register growth in 2017.
SECTOR OVERVIEW
Canadian exports of goods and services are projected to see zero growth in 2016, followed by a 3 percent rise in 2017. It is services exports that will provide lift, while goods exports are forecast to remain at due to significant contractions registered in three sectors: energy, fertilizers, and metals and ores.
While price declines have in most cases chipped away at goods exports in 2016, growing US demand and the weaker Canadian dollar are moderating the decline to some degree. This year, the contraction in energy and fertilizers, for example, will be partially offset by strong growth in motor vehicles and parts 16 percent and consumer goods 11 percent.
The forestry sector will also see a decline, due in part to the likely imposition of new duties on Canadian softwood lumber and the ongoing global decline in demand for paper.