Exports to slow as moderating global economy triggers domino effect

TORONTO – April 25, 2006 –The U.S. economy is beginning to slow, setting in motion a domino effect that will ripple from sector to sector and country to country and moderate global economic growth through 2006 and 2007, according to the semi-annual Global Export Forecast released today by Export Development Canada.

“The globalization of economies means that when the U.S. sneezes, everybody catches cold these days,” said Stephen Poloz, Senior Vice-President of Corporate Affairs and Chief Economist. “The economic dominoes have begun to fall, led by moderations in the UK, Australia and now the U.S.  When combined with persistently high oil prices and a strong Canadian dollar, this will prove challenging for the Canadian exporter.”

EDC is forecasting 4.3 per cent global economic growth in 2006 and 4.1 per cent growth in 2007, down from 4.5 per cent in 2005.  In Canada, economic growth was 2.9 per cent in 2005, and is forecast to remain steady at 3 per cent in 2006 and then taper off to 2.7 in 2007.  Economic growth in the US continues to slow to 3.1 per cent in 2006 and 2.7 in 2007, down from 3.5 per cent in 2005.

With inflation largely under control and expectations of slower growth later in 2006, central banks are nearing the end of their tightening cycles. EDC expects the Canadian dollar, now clearly a “petrocurrency”, to average 85 cents U.S. in 2006 and ease to around 80 cents U.S by the end of 2007 as oil prices decline. EDC forecasts a decrease in the price of oil to USD 60 per barrel in 2006 and a further drop to USD 56 in 2007.

“In addition to the global dominoes tumbling into one another, there is a more complex, strategic game of dominoes at play at the geopolitical level,” continued Mr. Poloz. “We are seeing global powers jockeying for better energy security on one level, and a rise in protectionist rhetoric and practice on another. These two cross-currents have the potential to send major new tremors through global financial markets in the months ahead.”

The easing in global economic activity is forecast to produce a corresponding pullback in Canadian export growth.  Canada’s exports of goods and services are forecast to rise by 3 per cent in 2006 and by an even more subdued 1 per cent in 2007, down from last year’s pace of almost 6 per cent.

Canadian export sales in emerging markets will continue to outperform shipments to industrialized countries. Exports to emerging markets are forecast to grow by 10 per cent in 2006 and 7 per cent in 2007, whereas shipments to major industrialized countries will post growth rates of 3 per cent and 0 per cent, respectively. Export growth to Brazil, Russia, India and China will remain strong, but some of the most rapid growth will be to markets in the oil-rich countries in the Middle East and Africa.

Provincially, the highest rates of export growth in 2006 and 2007 will be Newfoundland and Labrador ( 7 and 10 per cent), New Brunswick (8 and 3 per cent) and Manitoba (7 and 2 per cent), with energy exports playing a central role in most. The lowest rates of export growth are forecast for Quebec (4 and 0 percent), British Colombia (1 and 0 per cent) and Ontario (1 and -1 per cent), where more manufacturing activity is concentrated. 

A number of export sectors will see strong growth in 2006-07. The energy sector’s exports are expected to continue to be robust with 8 per cent growth in 2006 before dropping off to 4 per cent growth in 2007 due to lower prices.  The advanced technology sector is forecast to see export growth of 4 per cent in both 2006 and 2007, while the telecom recovery will cool to 8 per cent in 2006 and 5 per cent in 2007 from a 13.8 per cent surge in 2005. Renewed cattle shipments to the U.S. have buoyed Canada’s agri-food sector, where exports are forecast to grow by 8 percent in 2006 and 3 per cent in 2007 after a decline of 1.5 per cent in 2005. Aerospace exports rose by 4.9 per cent in 2005 on the strength of helicopters, business jets and parts.  These same segments will drive growth of 5 per cent in 2006 and 2 per cent in 2007.

Other sectors will find the global environment much more challenging, especially forestry, automotive and consumer goods. The forestry sector will continue to struggle in the next 12 to 18 months owing to the persistently strong Canadian dollar, high production costs, greater international competition and weaker pricing in some industry segments.  After posting a decrease of 5.7 per cent in 2005, EDC is forecasting repeated export declines of 5 per cent in each of 2006 and in 2007. The automotive sector is forecast to post export declines of 3 per cent in 2006 and 5 per cent in 2007.  Consumer goods exports are also forecast to continue their downward trend, falling 6 per cent and 7 per cent in 2006 and 2007, respectively.

“Some of the strength we are seeing is surprising given their historical sensitivity to Canadian dollar strength,” said Mr. Poloz. “Advanced technology and telecom would normally be licking their wounds in this type of cycle, but we’re seeing the benefits of globalised production, which  is allowing Canadian exporters to better absorb the dollar’s rise.  Unfortunately, for those sectors not faring well the stresses at work are forecast to remain with us for the time being.”

The Global Export Forecast addresses the latest global export conditions including perspectives on interest rates, exchange rates, as well as export strategies to help Canadian companies minimize risk. It also analyzes a range of downside risks for which exporters should be prepared.

EDC’s semi-annual Global Export Forecast is available on EDC’s web site at
http://www.edc.ca/gef

EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 7,000 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and is a recognized leader in financial reporting, economic analysis and human resource management.

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Media contact:
Phil Taylor
Public Affairs
Export Development Canada
(613) 291-1276
ptaylor@edc.ca