For the average exporter, making sense of the latest tariffs, tweets and plot twists on the global economic stage has become little more than a guessing game.
There’s a lot of confusion out there, bordering on angst, and leading to negativity. As a result, many Canadian companies are hitting the pause button. It’s time to cut through the clamour, summarize where we are now, where we’re likely to be in the near future, and how to position your company to take advantage of available opportunities.
EDC’s Chief Economist, Peter Hall, spent the last month on his biannual Let’s Talk Exports cross-country tour, during which he provided both context and predictions for where Canadian exports are headed. If you weren’t able to attend one of his speaking engagements, you can watch the on-demand webinar. But first, take a few minutes to review highlights from his latest talk, as well as some timely advice for building your export action plan.
Weak domestic outlook
Canada’s debt-to-income ratio is hovering at 175%—a full 10% higher than it was in the United States just prior to the Great Recession. We’re experiencing a housing bubble that’s spread well beyond Vancouver and Toronto; unfortunately, bubbles eventually burst. With interest rates tightening, the carrying costs of debt are on the rise. Mix it all together: Domestically speaking, we aren’t in a strong position. Any future gains will need to be made on the international front.
Pent-up demand in the U.S. and Western Europe
The housing sector never truly recovered after the 2008 correction, resulting in a large and growing housing deficit. A flurry of growth will eventually fill in the gaps, with many other sectors following in the slipstream. Business investment levels should return to normal now that pre-recession excess capacity levels have been exhausted.
Front-line buyers soft on future
Purchasing managers on the front lines of business, previously optimistic about the near-term forecast, have become decidedly soft in their outlook. At the same time, data points to negative world trade flows.
Populism and protectionism on the rise
Logic would presume that with all the job creation going on around the world, populist sentiment would be on the decline. Rather, it’s accelerating at a startling rate, and so too are the protectionist policies that follow in its wake. It took many years for the global economy to get back on its feet, and the people who suffered through the lean years have long memories and are looking for someone to blame.
New trade deal: The reality behind the rhetoric
Despite the many delays and machinations, a new free trade agreement was finally struck between Canada, the U.S. and Mexico. Regardless of which country’s letters come first in the agreement’s final name, it spells progress. Once ratified, we’ll have a next-generation deal that incorporates new protections for intellectual property and improvements on a number of critical non-tariff fronts.
The U.S.-China tariff tiff
It’s taken about 30 years to build up the supply chains that make the world’s economy go around. Orchestrated in large part by American corporations leveraging low-cost production in China, it’s hardly a situation that will change overnight. Nor should it: In bringing back some jobs to America, the result would be considerably higher prices for all Americans. As risky and expensive a proposition as this is for the U.S., China would fare far worse. They need an agreement as much as, if not more than, the U.S. Logic points to a future resolution.
Short-term outlook for Canadian exports
Export growth is forecast in the 4% range. The aerospace and machinery and equipment sectors are seeing good numbers. Although the U.S. auto sector has peaked, some interesting investments have found their way into Canada. Overall, commodities are in decent shape, with the exception of the beleaguered energy sector.
Action plan for Canadian exporters
International way forward
Don’t count on our domestic economy to fuel your growth. Although Canada emerged from 2008 with a rather solid economic position, the underpinnings aren’t the same this time around. Look to external markets as your best way forward.
Go for the gap
Fear is holding back many companies and they’re inadvertently cheating themselves out of opportunities. But keep in mind: The window is starting to close. Now’s the time to go into that gap to lock in business that others are leaving on the table.
Surf the surge
There’s been a great hold-back on investment due to trade uncertainty, but at some point in the near future, this will be replaced with a surge of investment. Get in position to ride the wave.
Dare to diversify
Nurture the business in your top markets, but keep an eye on the fast-growing economies that will still be growing in 10 to 20 years. There’s an increase in the number of Canadian businesses choosing to diversify into emerging markets. In doing so, they’re reducing their exposure to a dip in any single market, not to mention insulating themselves against the cacophony of tweets, tariffs and other methods of global trade distraction.