What’s in it for me? It’s a reasonable question in any business deal, from the grade-school playground to the boardroom of the multinational corporation. It also applies to macro forecasting. It’s fine to know the big picture, and more necessary than ever. But if it is impossible to distill from that the effects at the industry level, then listeners are left to figure it out on their own. Our forecast attempts to bridge the gap by offering something more detailed. In our new forecasting tool, we cover 28 industry categories, complete with performance and forecast data, and visuals on Canada’s presence, by industry, in world markets. What is the outlook on an industry-by-industry basis?
The news is generally good. Overall growth for exports of Canadian goods is forecast to increase by 6 per cent this year and by another 5 per cent in 2018. This year’s numbers are getting a lift from the rebound in commodity prices, but there is other interesting stuff going on as well. The 2018 forecast is less about price movements and more about increased flows of real stuff leaving the plant gate, and it’s linked to the ramp-up in world growth from 3.5 per cent in 2017 to 3.8 per cent in 2018. If anything, it looks like these numbers are conservative. Through April, this year’s exports are up 8.5 per cent over last year, and since last June, growth is rocketing up at an 18.5 per cent pace on an annualized basis. Pretty heady stuff. What’s driving this?
Broadly speaking, this year’s winners are generally the industries that took a drubbing last year. Faced with steep price declines, energy sector exports were off by 17 per cent last year, the aerospace sector dropped 11 per cent and mining shed 3 per cent. It’s a big U-turn for energy exports this year, rising by an expected 18 per cent. At the same time, mining is in for an 11 per cent surge. In both sectors, prices are the principal factor, in addition to volume growth related to the completion of development and expansion projects. The sector is also expected to benefit from cost-containment exercises that will enable higher viable throughput at lower world prices.
Aerospace exports will also see double-digit growth, but not until 2018. Increased global demand and the ramp-up of production of the Bombardier C-Series are behind this impressive acceleration.
In the middle of the pack are three industry groupings. After a slight drop in shipments last year, the chemicals and plastics sector is expected to grow 7 per cent this year and 8 per cent in 2018. This growth is connected to the increase in US industrial production over the short term, and to favourable pricing. Industrial machinery and equipment is forecast to average 5 per cent growth this year and next. The partial revival of the resource sector is partly responsible, along with a general increase in business investment after a 7-year lull. The third ‘middle-growth’ sector is fertilizers, which, after taking a drubbing in 2016 will see two years of stable growth at 4 per cent.
Softer growth will be seen in a number of export sectors. The auto sector will see shipments flatten out in the next two years, partly as a result of sales peaking in the US and capacity limitations in Canada. Activity remains robust in the industry, and near-term investment commitments in Canada are significant. Advanced technology exports have struggled to grow for a number of years, and we expect no material change in shipment levels through 2018. Things will be modestly better in the agri-food sector. Potential growth is very strong, but foreign sales will be limited by available supplies. Upside growth is possible with the signing of the CETA agreement, as the greatest single opportunities under this deal are in the agri-food space.
One final observation: with trade shock-talk swirling, the diversification word has come back into the vernacular. The CETA agreement will boost near-term European sales, increasing our diversification to more traditional markets. In this forecast, exports to emerging markets will rise at a double-digit pace this year, and in many industry sectors, emerging market sales will power ahead at much superior growth rates.
The bottom line?
There’s quite a bit of diversity in growth rates by industry sector over the near term. If anything, overall results could be better than foreseen, given recent data. And even in softer sectors, there’s a lot of hot emerging market demand.
