Last week’s Commentary launching EDC’s Global Economic Outlook emphasized that current or prospective exporters are at a decision point. In spite of continued geopolitical risks – including here in North America – and lingering structural weaknesses, our position is that a true global recovery is underway. And, if we’ve got it right, the conditions are ripe for these companies to seize some these nascent opportunities. EDC’s Global Export Forecast provides a sector-by-sector glimpse into where these opportunities might exist. First the growth story. After two years of moderating growth, the global economy will post a stronger showing in 2017-2018. Developed markets (DM) have turned a corner with the majors (US, Japan, Euro Area) all posting stronger performances. More promising for Canada’s exporters is that the US will accelerate further into 2018. In the emerging market (EM) space, we see an even stronger outlook. Of note in 2017 both Brazil and Russia are forecast to resume growth following two years of recession.
So, with both the developed and the emerging worlds expanding, what impact will this have on Canadian exports? 2017 was a remarkable year with eight per cent export growth, led by massive gains in the commodity space. Growth will taper off somewhat in 2018. Service exports growth will be more balanced, at six per cent each year. The vast majority of Canada’s goods exports (88 per cent) continues to be destined for developed markets. As such, the DM growth story, led by the US, is critical to Canada’s near-term exports of goods. While a much smaller 12 per cent share, EM exports will nonetheless post very impressive 12 per cent growth in 2017 before settling in at just three per cent next year.
Now let’s take it down to the sector-level as this growth won’t mean the same thing for all sectors of exports. Standing at CAD 77 billion and forecast to grow by an astounding 31 per cent, energy had by far the greatest impact on the value of Canada’s exports in 2017. The intense growth will be short-lived as growth flatlines in 2018. While Alberta will experience the bulk of this growth, Newfoundland and Labrador will also reap the benefits of the Hebron project coming online.
Not to be outdone, the ores and metals sector boasts double-digit growth in 2017, propelled by stronger iron ore prices, before coming back down to earth in 2018. Canada’s gold exports see good growth over the forecast period owing to increased production. Ongoing geopolitical risks, often driving up demand for gold as a ‘safe haven asset’, provides a boost to prices.
The only other sector group seeing double-digit growth in 2017 is Industrial Machinery and Equipment. The driving force behind this growth story is the US, which might seem surprising given many of the signals coming out of the US recently (e.g. policy uncertainty, NAFTA renegotiation, etc.). However, in spite of much of the hubbub surrounding the US, we are seeing recovering US business investment really starting to take off and this is playing out in Industrial Machinery and Equipment export numbers. Much of this momentum carries forward into 2018.
2017 will see aerospace exports climb back into positive territory with four per cent growth. The sector has recently received considerable attention with the US Commerce Department imposing preliminary duties against certain Canadian aerospace exports to the US. While this decision has raised concerns within Canada (with Quebec being particularly perturbed) a final ruling is not expected until 2018. In any event, our forecast is that aerospace exports will continue growing into 2018.
The forestry sector will see export growth slowing in 2017 and 2018. One the one hand the sector is benefiting from demand coming from the US as housing starts continue climbing as economic growth gains momentum. Countering this is the ongoing softwood lumber dispute between Canada and the US which will adversely impact Canadian exports, largely from British Colombia, until a settlement is reached.
The bottom line?
It’s been a long time coming, but as presented in our Global Economic Outlook, global growth is back. Canada’s exporters are set to continue gaining from this growth throughout 2017 and 2018. The opportunities vary sector by sector and there are many variables to consider and risks to mitigate. Our Global Export Forecast is but one tool in the Canadian exporter toolkit to provide insight and guidance and help our companies when it comes time to make those decisions.
