2012 Outlook: Cautiously Optimistic

Turbulence in 2011 led to the observation that for many, surviving the year was an achievement. Manifold risks remain, and most early-year predictions are being adjusted downward. In a year where the ultimate is easier to see than the immediate, bold pronouncements for 2012 deserve a healthy dose of skepticism. This is the delicate context for EDC's Winter 2012 Global Export Forecast.

On the scales of most analysts, risks far outweigh opportunities. Heightened political turbulence, a legacy of 2011, has been further aggravated by the threat of escalated conflict with Iran - just as the US is withdrawing from its costly Iraqi operations. The mighty BRICS economies are softening. Big developed economies are bogged down with fiscal woes. Access to financing is constraining even the more promising projects. And our collective dichotomous perspective - the stark difference between how gloomy we feel and our actual economic activities - is not helping.

In spite of this daunting list, we are cautiously optimistic about the steady rise in US economic momentum, for a number of reasons. It is happening in spite of the predictions of most. It is occurring in a context of widespread world weakness. This time around, US growth is accelerating without the aid of additional public stimulus. Also, it's not a one-sector phenomenon, but a broadly-based movement. Finally, the measured upswell in growth is justified by basic economic fundamentals that are returning the US economy to more normal activity levels.

Although European weakness will scar world growth this year, acceleration in the US and Japan will lift growth for the industrialized world above last year's pace, and enable emerging markets to stay their course. As a result, global growth is forecast to rise this year to 3.7 per cent, up marginally from 3.5 per cent in 2011. Momentum will rise as the year wears on, provided there are no major unforeseen interruptions along the way.

Canada will be more dependent on external factors to power economic growth this year. Consumers have played a big role in sustaining growth over the past three years, but rising indebtedness and a stretched housing market will weigh on spending this year. Weaker commodity prices will dampen overall trade numbers in 2012, but an important upside is that price weakness will keep a lid on the Canadian dollar, forecast to hover in the US 98-cent range. This, together with rising US production and decent emerging market growth, will power sales of higher-value Canadian exports. Export growth is forecast at 6 per cent this year following an 11 per cent gain in 2011.

Primary industries look weak in the forecast, with energy exports flat, metals up just 3.2 per cent and the agri-food sector softening to only 2.7 per cent growth. However, in each case, prices are a huge factor; volume shipments will still be growing strongly. Success is more obvious in other sectors. Higher US housing activity will help forestry exports to a 12 per cent gain, the aerospace sector is in for a 16 per cent boost, and the automotive industry can expect 21 per cent growth this year.

The bottom line?

At the beginning of a year where much could go wrong, thoughts are sober. Canada is especially vulnerable to turbulent world activity this year, but in general, our trade is well-positioned, given a resurgent US economy and continued diversification into non-traditional markets.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.