Trade Confidence is Up...Again!
By Peter G. Hall
Vice-President and Chief Economist Export Development Canada
For those whose working lives began in the past 5-7 years, ‘normal’ has been pretty gloomy. For much of that abnormally long period, a key economic ingredient – confidence – has been missing. In the middle of last year, it made a comeback. No, it’s not really roaring back, but in key OECD nations, it is back into the historically normal zone, and is rising. That’s a great relief, but is it affecting business flows? In Canada’s case, is it doing anything for exporters and their international activities?
Since 1999, EDC has conducted a semi-annual survey of trade confidence, which is the substance behind the Trade Confidence Index. The Index covers a unique period of history, including 9/11, the ‘tech wreck’, the soaring Canadian dollar, the massive, 5-year global bubble of excessive activity, the Great Recession, the hyper-stimulus that followed, and then – the long lull that we are only now beginning to emerge from.
Do exporters believe that this ‘long lull’ is ending? I just recently wrapped up my annual spring speaking tour across the country, meeting in 19 cities with some 2,300 Canadian exporters and those who work together with them. What I heard was that they want to believe it is true – and when asked about their personal experience, their order books seem to suggest that something is definitely picking up on Canada’s trade front.
The Trade Confidence Index agrees. In our most recent survey, conducted between March 24 and April 4, 750 respondents signaled a rising level of confidence in the global economy and their international sales. This is particularly encouraging, as the survey came hard on the heels of the unusually bitter North American winter. In addition, this is the third successive increase in the Index, taking it to its highest level in the post-stimulus period, a level that is also well above the average score seen during the pre-crisis global economic boom.
What’s driving the recent increase? Of the five Index elements, export sales were strongest. With 61 per cent of respondents expecting increased export sales over the coming six months, the balance of opinion for this indicator – the difference between those expecting increased versus decreased export sales – rose 9 percentage points to 57 per cent. International business opportunities also increased smartly. The balance of opinion rose from 29 per cent last fall to 37 per cent in the spring survey.
Those who see improved international opportunities in the next six months are more upbeat about global conditions and general stability, although the scores here are still pretty small. Their optimism seems to have been ignited by the change in the Canadian dollar. Only 9 per cent cited the dollar as a factor last fall; now 37 per cent see it as key to an improved outlook. When asked why, the most popular response was that a lower dollar will help them to increase sales by lowering their selling prices.
Exporters are less upbeat about domestic economic conditions. The balance of opinion for this indicator was the only one to fall, edging back marginally to 13 per cent. Paradoxically, they are more positive about domestic sales, where the balance of opinion rose 9 percentage points to 43 percent of those surveyed. It seems that while exporters are wary of weakness on the home front, sales are still roaring. Interesting.
Put it all together, and exporters seem to agree that Canada’s growth is rotating – from the internal strength that we have enjoyed through the period of rough global growth, to a new, robust increase on the international front. Global indicators – particularly in the US and other OECD countries – point to a surge of global activity that is already very much underway. It is heartening to see that Canadian exporters – who account for about 30 per cent of GDP – appear to anticipate this, especially in the light of our modest experience of the past few years, and the tentative response that still seems to pervade global business decision-making.
The bottom line? Trade confidence is on the rise, a sign that Canadian exporters are on top of recent changes in global demand. Let’s hope that this perception is now translating into preparedness. There could be lots of activity coming our way.