CUSMA brings relief but trade worries persist: EDC survey

The surge of optimism felt by Canadian exporters at the mid-year point of 2018 has now tempered, according to the results of EDC’s most recent Trade Confidence Index (TCI) - a bi-annual survey of 1,000 Canadian exporters. After the index jumped to 76.5 in June of this year, results from the 2018 year-end survey reveal that it has now backtracked to 73.8.

While the overall result is solid, on par with the historical average, confidence modestly decreased in all five major categories of the survey: domestic sales, domestic economic conditions, export sales, world economic conditions, and international business opportunities.

“There was a lot of excitement going into the last TCI survey,” said Peter Hall, Chief Economist, EDC. “Business was good and the tide of global economic growth was lifting Canadian exporters, despite the uncertainty surrounding NAFTA renegotiations at the time.”

“EDC’s latest survey shows that trade confidence lost this early-year lift. Even with the CUSMA deal in the works, trade turbulence elsewhere seems to have undercut the overall feel-good factor. It’s unfortunate because the global economy remains strong, and this is exactly the time when Canadian companies should be out there taking advantage.”

Among the TCI survey’s five major categories, confidence in world economic conditions fell the most, with protectionism driving that negative sentiment. The outlook in this category is at its lowest point since 2015, when companies were dealing with the oil price shock.

• One-third of respondents said that increased protectionism was affecting their global strategy. Of those respondents, the main concerns cited were higher tariffs, the ‘buy American’ attitude south of the border, and reduced competitiveness.
• Foreign tariffs or trade barriers were cited by respondents as the top challenge facing Canadian exporters (14 per cent of respondents). Obtaining financing and finding skilled talent tied for the second biggest challenge (11 per cent of respondents).
• Thirty-four per cent of survey respondents said they were negatively impacted by the on-going steel and aluminum tariffs that are affecting Canada-U.S. trade. Of those negatively impacted, the top actions taken included raising prices, finding new markets or suppliers, and attempting to source locally.

Survey respondents were more optimistic about the Canada-United States-Mexico Agreement (CUSMA). The existence of the new North American trade deal has reduced uncertainty for Canadian exporters. This has had a notable impact on investment intentions and should reactivate some delayed investments.

At mid-year, uncertainty around the deal had 57 per cent of the respondents who identified as having their investment plans affected by the North American trade talks, delaying investment. By the end of the year, that number dropped to 35 per cent. Among the same group of exporters, the percentage of companies looking to increase investment more than doubled from 18 per cent at mid-year to 41 per cent.

On the contents of the CUSMA deal, exporters were for the most part neutral in sentiment. This may be attributed, in part, to a lack of information available at the time of the survey, as negotiations were only recently concluded and the new deal hadn’t entered into force.

• The diversification trend continues: though not as pronounced as it was at the mid-year point, the percentage of respondents planning to export to new markets and those looking to invest abroad remains well above the historical average although the perceived need to diversify seems less urgent than during the NAFTA talks.
• The labour shortage is real: 35 per cent of respondents said it was ‘very difficult’ to find skilled labour. This is the highest percentage recorded since the question debuted in the survey in 2012. Still, almost half – 48 per cent – of exporters said they plan to increase hiring in the first half of 2019
• Regional disparity: Businesses in provinces east of Ontario are feeling more confident than those to the West. The TCI is lowest in Western Canada, at 72.9, compared with 74.9 in Quebec and 74.3 in Atlantic Canada. At 73.5, Ontario is close to the national average.
• Sectoral outlook: Outside of transportation which saw a modest increase, the TCI has dropped in all major Canadian sectors. This decrease is most pronounced in the extractive sector, where it dropped more than eight points from 77.9 to 69.4.

Click here to read more about the 2018 TCI Report.

EDC surveys 1,000 Canadian exporters twice a year for the Trade Confidence Index. The results are a pulse check of Canadian exporters’ level of confidence and their expectations of international trade opportunities over the next six months. Respondents are a mix of small (70%) and medium- to large-sized companies (30%) across the country. This survey was conducted from October 23 to November 13, 2018. This was shortly after the CUSMA agreement was announced on September 30, 2018.