Global Export Forecast—Fall 2019

Amid escalating United States-China tariffs and a sharp slowdown in global trade, how are Canada’s exports holding up? 

In 2019, Export Development Canada’s (EDC) economics team expects nominal exports to grow at a relatively subdued pace of 3.6%, which has slowed to roughly half the pace of 2018. That said, Canada’s export performance has been fairly resilient this year and was especially strong in the second quarter. As such, EDC has revised its outlook up from the 3.3% expected in the spring forecast. 

The story is different next year, with the slowing global economy and lingering trade tensions weighing more heavily on Canada’s exports than previously expected. EDC now forecasts export growth to moderate further to 2.6% in 2020, revised down from the 3.4% growth forecast in the spring.

Several export sectors are performing well this year—most notably aerospace, industrial machinery and energy—offset by longer-term weakness in forestry and the auto sectors. 

Stronger-performing sectors

• Aerospace is again poised to be a strong performer. Exports reached more than $18 billion in 2018 and are forecast to grow by 14% in 2019, before cooling slightly to 8% in 2020 when deliveries are expected to peak. 
• Industrial machinery and equipment are on track for a healthy 8% export growth this year, due to robust demand from U.S. fixed investment, before slowing to 3% in 2020. 
• Energy saw 17% export growth in 2018, but will advance at a more modest 7% this year and 5% in 2020, as insufficient pipeline capacity erodes nominal gains from stronger prices for Canadian crude oil.

Weaker-performing sectors

• Automotive exports are expected to remain weak. Following last year’s decline, the sector will see gains of only 1% this year, before a sharp drop of 9% expected in 2020. Increased demand is expected to drive international sales of auto parts and heavier transportation equipment, but exports of Canada’s passenger cars and light vehicles are expected to fall, as some original equipment manufacturing capacity moves south of the border.
• Forestry exports will dip by around 12% this year, due to a sharp drop in lumber prices and weak U.S. housing starts. Pulp exporters are being hit by a softening in Chinese demand, but are forecast to rebound by 6% growth in 2020 as tighter supply leads to higher prices.
• For ores and metals, weak prices and volumes will weigh on growth, while gold exports may benefit from geopolitical instability and higher Canadian production. 
• Agricultural exports are likely to repeat last year’s mediocre growth, forecast to come in at 2% higher this year before rising to 4% growth in 2020.

Goods versus services 

Goods exports have been more negatively impacted by softening global conditions and are expected to grow at a modest 3.3% in 2019, slowing further to 2.3% in 2020. Alternatively, services exports have been resilient, and continue to be steady with forecasted growth of 5.1% this year and 3.9% next year. 

Developed versus emerging markets 

Developed markets are the primary destination for Canadian exports, and in 2019, exports to both emerging and developed markets are forecast to grow by similar rates. However, in 2020, the longer-term diversification trend is expected to resume, with Canada’s exports to emerging markets forecast to grow more than twice as fast as those to developed markets.

While the national export outlook is for relatively modest growth in both 2019 and 2020, the provincial outlooks are quite varied. With different combinations of key trading partners and export specializations, the same factors that will boost performance in some provinces, may stem growth for others. Here is EDC’s outlook for each province:

Newfoundland and Labrador: Strong double-digit export growth is forecast as production at the Hebron offshore oil platform ramps up, and Hibernia and White Rose resume full production. Additionally, production growth from several mines and new production from Tacora support a strong export outlook for the province.

Nova Scotia: Global trade dynamics are driving a strong export outlook for this province. With improved international access supported by the entry into force of the Comprehensive Economic and Trade Agreement (CETA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade deals, and competitor American lobster exports facing new tariffs from China, the province’s seafood exports are leading to an overall export boost.

Prince Edward Island is not fully benefiting from international seafood demand as prices received for its lobster catch are below those in other fishing regions. The spring fire at Downeast Cape Bald Packers’ lobster plant in New Brunswick is hurting exports. Growth from the expansion of StandardAero’s Summerside facilities in late 2018 and other food-processing facilities will contribute to decent growth.

New Brunswick’s outlook has been revised up since EDC’s spring forecast. A slight contraction in exports was previously expected, following the October 2018 explosion at the Irving refinery. However, the repair work and rebound in production aren’t expected to have as negative an impact, and there’s stronger production from the Caribou zinc mine (after a shutdown), coupled with initial production coming online from Restigouche.

Quebec has also notably improved since our last forecast, assisted in part by the elimination of U.S. tariffs on Canadian production of steel and aluminum in May. Other positive factors include increasing production of Airbus A220 aircraft and the entry into service of new Hydro-Québec projects and expansions in the mining sector.

Ontario: The announced closing of key automotive factories, including General Motors’ Oshawa plant near the end of 2019, and the ripple effects on the auto parts sector from the GM strike in the U.S., will affect Ontario’s export outlook for 2020.

Manitoba: The winding down and closing of several mines between 2018 and 2020 is expected to hit this province’s export growth in stages. Accounting for the province’s growth over the forecast will be several investments coming online in the agri-food sector by J.R. Simplot, McCain Foods, Maple Leaf Foods and Roquette.

Saskatchewan: Geopolitics impacting the agriculture sector, as well as closures of uranium and potash mines, are expected to result in a contraction of Saskatchewan’s exports in 2019.

Alberta: As a result of continued production restrictions, stronger prices for energy products will support this province’s nominal export outlook in 2019. The expected entry into service of Enbridge’s Line 3 pipeline near the end of 2020 should drive growth next year. 

British Columbia’s outlook has deteriorated significantly since the spring due to the weakness in the forestry sector and the increasing roster of mills that have curtailed production or closed.