Trade Confidence Rebounds
By Peter G. Hall *
EDC Vice-President and Chief Economist
Confidence among Canada's exporters has generally been strong in the post-recession period. It suffered a multi-survey plunge well ahead of the recession, but by the fall of 2009 had climbed above previous peak levels. It floated in that upbeat zone for four successive surveys, but sunk back into recession territory last fall. Thankfully, this tumble was short-lived – the Index is right back to where it was a year ago, a level that's consistent with very decent growth in export activity.
It's a relief, but does it make sense? Put in context, indeed it does. Last fall, exports were reacting to the gloomy global data that reflected the effects of successive early-2011 natural disasters and political turmoil. These effects proved to be temporary, and world economic data improved. Moreover, at the time of the spring survey, things were also looking better in Europe. In large part, the rebound in the TCI was due to a sharp reversal of exporters' perceptions of world economic conditions.
Higher confidence also squares with underlying trade strength. Recent weakness in overall export numbers is concentrated in oil and base metals, and is greatly influenced by weaker world prices. Aside from these shifts, export volumes are much more encouraging. Auto sector exports are up 13% thus far this year, and exports of heavy equipment and agri-food products are also sporting double-digit gains.
Increased confidence was evident across Canada and in all industry sectors. Among companies, medium-sized firms recorded the greatest gain in confidence in the spring survey. Hiring intentions are now higher than at any point since the spring of 2008. Respondents remain sensitive to the Loonie, but 97% now say that they are moderately or very prepared to deal with a parity dollar.
Clearly, perceptions of the sovereign debt crisis in Europe have deteriorated since the survey, and anecdotal evidence suggests elevated concern among Canadian exporters. Moreover, additional commodity price weakness will further weigh on Canada's trade data in the coming weeks. However, a weaker Canadian dollar and lower commodity input costs will help to balance the scales as we move through the summer.
While confidence indicators around the world are still registering post-recession gloom, the TCI bucks the trend, pointing to decent near-term export growth. Recent success in the US market is likely being augmented as Canadians diversify into new, faster-growing export markets. Almost two-thirds of respondents sell to more than one market, and while one in three companies has entered a new market in the past two years, over half intend to enter a new market in the coming two years.
The bottom line? Canada has gone against the grain a lot lately – in public finances, banking, domestic demand – and now in optimism. Maybe our new national trend is a refreshing contrariness.
Picture: Peter Hall