Energy exports to rebound in 2017, says latest forecast by Export Development Canada
While natural resources continue to struggle under lower prices and sluggish demand, double-digit growth in consumer goods, automotive, and aerospace sectors will drive Canada’s overall exports to grow by two per cent this year, according to a new global export forecast by Export Development Canada (EDC).
“Canada’s export story in 2016 is, naturally, directly linked to what we’re seeing in the global economy: commodities are struggling but people’s need for homes, furnishings, and transportation to and from work is rising again,” said Peter Hall, Chief Economist, EDC. “These are the export sectors that will do best this year, and they are being propelled by especially strong demand south of the border. The US economy is powering up and spreading its growth to the rest of the world, which is the main cause for Canada’s surging exports in the transportation and consumer goods categories.”
On the other hand, resource exporters will continue to be challenged this year, as crude oil and natural gas price declines are causing a heavy 14 per cent hit to energy exports. The market will bottom out this year, with a partial recovery expected in 2017.
EDC’s semi-annual Global Export Forecast attributes this year’s gains in non-resource sectors to strong demand from the US, spurred by increased home building, consumer spending and business investment. At the same time, rising global demand for new aircraft and related services will also help Canada’s export performance. Add to that the weaker Canadian dollar, which gives exporters a price advantage when selling into the US and certain other foreign markets, and it further boosts Canada’s overall export growth.
“Canada’s current numbers are impressive, but there are threats to the growth story. Turbulence in global stock markets and currencies, as well as risker bond markets and volatile commodity prices are affecting growth in certain economies. Most are interpreting this as evidence of global weakening,” said Hall.
“In fact, in large part it seems to be a result of growth, and the need to retract excessive liquidity before it ignites inflation. If financial market mayhem is really about the return of growth, then there are lots of great opportunities out there for Canadian exporters to take advantage of. The continued growth of the US economy is likely just the beginning.”
Hall says stable growth in the US over the next few years will mean increased demand for consumer goods produced in Canada, including housing-related goods such as furniture and household durables. Niche industries such as medical equipment will also experience export growth as an aging US consumer drives higher health spending.
Several factors are pushing higher demand for Canada’s aerospace exports, including lower jet fuel prices that have led to stronger margins for airlines. As a result, mainline carriers are now looking to renew and expand their fleet of aircraft. There is also accelerating demand for training and air crew education, which is boosting exports of Canadian-built flight simulators like those made by CAE.
For the auto sector, record US demand for vehicles along with the lower Canadian dollar are the main reasons for the expected 10-per-cent growth in auto-sector exports this year, according to EDC’s forecast. There will also be increased shipment volumes now that vehicle manufacturing plants in Windsor and Oakville have resumed full production following down time for modernization and retooling.
“Despite what the headlines say, there are several bright spots for Canadian exporters beyond the US market, particularly in Asian markets such as China and India,” said Hall. “Both countries will see growth of more than six per cent this year, an impressive clip given their economic size. Still, it’s imperative for exporters going into those markets to do their research first and identify areas of opportunity, while also getting a grip on risks they need to protect themselves against. There are plenty of resources to help.”
India offers a particularly attractive opportunity for Canadian exporters, according to EDC, as the Indian economy continues to grow thanks to increased consumer spending buoyed by lower fuel prices, well-managed monetary policy, and a favourable investment climate. China also remains a good market for Canadian exports, even as growth in the Chinese economy slows from its frenetic pace of recent years. EDC’s forecast says export growth is also returning to markets in Africa, the Middle East and Emerging Europe and Central Asia.
On another positive note, EDC says Canada’s energy and resource sectors should see a return to export growth by next year.
“The difficulties faced by Canada’s energy and resource exporters have lasted longer than most forecasters had expected because of continuing low energy prices and less robust growth in other parts of the world, but that should start to turn around in 2017,” said Hall. “Sectors that will see declines in exports this year, such as energy, fertilizer, and chemicals and plastics, are all expected to bounce back next year, with energy exports in particular forecast to increase by nearly 20 per cent, thanks to partial price recovery and an increase in crude volumes.”
EDC forecasts that provinces with diverse economies and strong manufacturing sectors will do quite well this year, with Ontario expected to see a seven-per-cent increase in its exports while exports from Quebec should be up five per cent. But provinces that rely heavily on energy exports, such as Alberta and Newfoundland and Labrador, will see further declines this year, falling 10 and 11 per cent respectively. Both provinces are forecast to have much stronger exports in 2017, however, due to higher energy prices and increased export volumes.
Export Development Canada (EDC) is a financial Crown corporation dedicated to helping Canadian companies of all sizes succeed on the world stage. As international risk experts, we equip Canadian companies with the tools they need – the trade knowledge, financing solutions, equity, insurance, and connections – to grow their business with confidence. Underlying all our support is a commitment to sustainable and responsible business.
For more information and to learn how we can help your company, call us at 1-800-229-0575 or visit www.edc.ca.