Despite the massive upheaval caused by the pandemic, global trade bounced back faster than expected. China and the rest of emerging Asia, who suffered the first infections and lockdowns, have led the way back. But we’ve also seen sharp pickups in North America and Europe.
Canada’s trade performance has been remarkably resilient, too. Exporters were understandably quite pessimistic during the depths of the COVID-19 lockdowns in May, when EDC’s survey of trade confidence hit an all-time low. But business and consumer confidence has since improved as equity markets sprang back quickly and spending surprised on the upside.
After lockdowns eased, Canada’s goods trade defied the odds, tracing out a robust V-shaped recovery within a few months. The jolt was most obvious from restarting auto plants, which were making up for lost time and meeting unexpectedly-strong demand for new vehicles. But it wasn’t only autos. Our upward forecast revisions for 2020 were relatively broad-based, and largest for agriculture and forestry.
By the end of the summer, five of 11 export sectors were operating above pre-COVID-19 levels of activity (agriculture; forestry; mining; consumer goods and autos). At the other end of the spectrum, energy and aerospace continue to struggle through what will be multi-year adjustments.
Globally and in Canada, services trade has unfortunately suffered a more persistent L-shaped setback. Although commercial services held up well, border restrictions and mandatory quarantines dramatically reduced cross-country travel and transportation.
Bring it all together, and in what’s been a very trying year, we finally have good news for Year 1 of our Global Export Forecast: The economy and trade didn’t fall as far as we had initially feared. But the bad news is we now expect the recovery in Year 2 to be slower and highly uneven across sectors. With the virus causing immense uncertainty and structural adjustments, consumers and businesses are expected to remain cautious, global economic activity to recover more slowly, energy prices to be flatter, and restrictions hindering cross-border services to persist.
Our new forecast incorporates positive trade data for the summer, and has Canadian exports falling by 16% in 2020, better than the -20% expected in June. But we also see exports rising more slowly in 2021, by only 9% rather than the rosier 19% in June.
As bad as 2020 will be for most companies, Canadian export growth was actually worse in 2009 during the global financial crisis, when it fell 21%. That’s not to discount the profound COVID-19 impacts, which have reduced the level of exports in 2021 by a massive 16% relative to our pre-COVID-19 forecast.
Overall export prices will fall by about 3% this year, before rising by 2% in 2021. These dynamics largely reflect the major shock to global oil prices. On the upside, lumber prices have been on a tear this year, related to strength in the U.S. housing market, while agriculture and consumer goods prices are also relatively buoyant.
Canada’s exports to emerging markets will outperform exports to developed markets this year (-5% versus -17%). Among our major trading partners in 2020, Canada’s exports to China have been the strongest performer, as economic activity in that country rebounded faster than the rest of the world. Exports to the European Union have also been a bright spot, recording an above-average performance in the third year of the new trade deal–the Comprehensive Economic and Trade Agreement (CETA). In North America, exports to the United States have done reasonably well, all things considered, while exports to Mexico have lagged, as that economy has been especially hit hard by COVID-19.
Since our forecast is highly dependent on the spread of COVID-19 and related government responses, our outlook is subject to a much higher-than-usual degree of uncertainty. Pandemic containment is critical. Forecast risks are tilted to the downside, and could materialize quickly. Our base case scenario assumes COVID-19 outbreaks will be relatively contained in Canada and our largest trading partners over the medium-term. We also expect more decentralized government responses to future waves of the virus than the economy-wide lockdowns in the first half of 2020, which should result in less economic disruptions than have already occurred.
The bottom line?
That said, trade data, retail, car and home sales have already provided positive surprises. With unprecedented government transfers to households, record-low interest rates, sky-high personal savings rates, and bulging bank balances for upper-income households, spending could continue to out-perform. And when the recovery is finally self-sustaining, policy-makers will likely cautiously withdraw some of the unprecedented government support.
This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.