Trade Confidence Rebounds

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By Peter G. Hall
Vice-President and Chief Economist Export Development Canada

“Surging” was an appropriate adjective for exports early this year. That all changed in February and March, when two consecutive stumbles wiped out most of the gains. A partial rebound pacified pundits in April, but only just. Has this rough ride’s stomach-churn left exporters cowering in the corner, toughing it out, or getting that theme-park thrill that always wants more? Where is exporter sentiment at the moment?

From recent conversations with exporters across Canada, I’d say the mood is upbeat. Peel away that typical Canadian reticence to showcase success, and there were stories across the country of growth, and not the feeble kind; lots of double-digit dialogue was going on in May. Gains were largely attributed to US economic growth and a weaker Canadian dollar, although some were talking up progress in emerging market ventures.

This came hard on the heels of our latest Trade Confidence Index (TCI) cross-Canada survey of exporters. It was conducted this year between March 29 and April 20, and the results are encouraging. After three successive declines, the Index rebounded to the level seen in the spring of 2015. At 75.1, the Index value is consistent with past periods of strong growth in exports, and higher than any level recorded in the 2003-07 period just prior to the Great Recession. This is particularly significant, as the survey was conducted not just amid export turbulence, but also smack in the middle of considerable financial market volatility, where our currency had swung from USD 0.68 to almost USD 0.80.

Growth notwithstanding, exporters are concerned about the currency movements. No wonder; the survey shows that 87 per cent of those polled believe that the level of the Canadian dollar is either very important (50 per cent) or somewhat important to their ability to compete in foreign markets. Two-thirds of respondents believe that the lower loonie has positively impacted their foreign sales, with 40 per cent attributing this to their price discounting activities. Once again, in spite of the dollar’s recent gyrations and the availability of financial market mitigants, the single most common response of Canadian exporters – by a long shot – is simply riding out the ups and downs.

What moved the Index this time? Good question. For all five TCI elements, those expecting conditions to improve or remain the same moved higher. Perceptions of export sales topped the charts, with 95% of respondents expecting similar or improved results. Similarly strong outlooks were found in both domestic sales and international business opportunities. While scores for exporter expectations for both domestic and world economic conditions showed the weakest overall scores in the previous survey, this time around exporters’ outlooks for both elements improved considerably.

The jump in the Index got help from an unlikely source. The sub-index for the mining and oil & gas sectors, the lowest-scoring among the industries last time, leapt into the lead. It’s possible that rebounding resource prices at the time snuffed out the worst fears of industry leaders. Transportation was the second-largest gainer by industry. Interestingly, all industries were more upbeat this time, but light manufacturing – already sporting a high score – showed the smallest survey-to-survey gain.

Among the provinces, everyone improved, but Central Canada was the attention-getter: Quebec had the largest gain over the past six months, while strangely, Ontario showed the smallest increase. Results by business size were split: both large and small companies registered respectable increases in confidence, but mid-sized businesses were only mildly more upbeat.

On balance, the Spring TCI results are pleasing. In the context of economic, financial, geopolitical and meteorological volatility, there was every reason to see pessimism continue its recent upward trend. Rising confidence amid challenging circumstances speaks to the positive developments in the economy that Canadian exporters appear to be leveraging, successfully.

The bottom line? Canadian exporters have taken a few blows this year, but our Spring confidence survey shows that they are still in the ring, and enjoying things. Why? Because their view of short-term prospects returned to a good place.

[Source: EDC]

JULY 2018

Vol. 12 - No. 12


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