Canadian Exports: Where’s the Momentum?
By Peter G Hall
Vice-President and Chief Economist Export Development Canada
In all the turbulence swirling around us, a moment of bliss. Canada’s merchandise exports ended a volatile 2015 with a 3.9 per cent monthly surge that cut the trade deficit by almost two-thirds. The December gift came in spite of widespread fears that Canada’s trade stats would continue to disappoint, treading gingerly into the New Year’s financial market maelstrom. Is it just one of many volatile stats, soon to be erased by a down-month, or is there reason to believe that things are looking up?
It might be just one month, but December’s growth was attention-grabbing on a number of fronts. First, 10 of the 11 broad industry categories measured were up. Basic minerals was the only category to drop. Of the remaining sectors, five had a spectacular month, led by a 26 per cent surge in the aerospace industry. Mineral products had a banner month, followed by consumer goods, the auto industry and industrial machinery.
December’s unified growth capped off a year that saw anything but. Crushed by tumbling prices, the energy sector saw a third of total exports vanish in 2015. Basic minerals were rescued by exports of non-metallic minerals and volume increases in copper and nickel. Otherwise, sub-categories endured huge losses. On balance, the sector was flat. So much for the bad news. At the very same time, exports of consumer goods were up 18.5 per cent for the year, followed closely by a 16.8 per cent surge in shipments of autos and auto parts. The aerospace sector racked up a 15 per cent gain, and machinery and equipment exports were also solidly into the double-digits.
Skeptics could shrug this off, attributing most of the gain to the plunge in the Canadian dollar. While the price-adjusted exports are indeed less spectacular, they are still very impressive. Consider consumer goods, up by almost 7 per cent; industrial machinery, up 6 per cent; forestry products, in spite of weak pulp and paper shipments, up 5.7 per cent; basic minerals, up 6.6 per cent; and to many, the biggest surprise, price adjusted energy exports, up 6.8 per cent. These categories are all soaring well above GDP growth. In many cases, what this means is that company throughput is up, and that productive capacity is getting tighter. Add in the profit gains from a weaker Canadian dollar, and it’s entirely possible that Canada will see a corresponding near-term surge in investment in plant and equipment.
So much for last year; what does this mean going forward? Here’s where momentum means the most. Weakness will persist into 2016 in the energy sector, which in real terms at present has a very flat profile. Worse off is the chemicals and plastics sector, which ended last year 2.5 per cent below the annual average. Surprisingly weak is exports of electric and electronic equipment, off 1.6 per cent at year-end. But basic minerals takes the cake: in December, it had slumped 7.8 per cent against the year’s average, and it will take a lot to revive things in 2016.
Is there good news? Absolutely – the auto sector is on a strong up-trend, and is currently 8.4 per cent higher than average monthly exports for 2015. By the same measure, consumer goods - largely pharmaceuticals – are up 7 per cent, industrial machinery is up 4.6 per cent and forestry products are up 3.9 per cent. In each case, there is a sustained increase leading up to year-end. Mineral products show well, but much of this was due to a December spurt, so we’ll have to see if this persists.
What this means is that on a number of fronts – mostly in currency-sensitive, high value-added sectors - Canadian exports are looking very healthy going into 2016. True, financial market turbulence has weighed on sentiment in the opening days of this year, but in terms of real activity – and the solid U.S. consumer, housing and business investment fundamentals that are driving it – the near term future for exporters is looking bright. Given how liquid many corporations are, chances are good that this will be augmented by a wave of business investment.
The bottom line? Naysayers beware: momentum in real, price-adjusted Canadian exports in key industries is showing a very robust trend. And if prices rebound, even the resource sector could see growth in 2016. Exporters are off to a great start.