‘Up’ wasn’t the adjective of choice for Canadian exports in the opening months of this year. Momentum was decent as 2017 closed out. However, January and February numbers all but smothered that. It left Canada with an unwanted paradox: strengthening world (and US) growth, with not much to show for it on our bottom line. Are the glory days passing us by, or is there some other reason behind current weakness?
Funny, a year ago we weren’t having this conversation. In fact, at that time exports were rocketing higher. It looked like payback time, that Canada was actually capitalizing on stronger US and world growth. That rapid runup melted in the second half of the year, a hit that was shared by both the oil and gas sector and a North American auto industry that had gotten a bit ahead of itself. A handy recovery at year-end paved the way for growth this year, but January and February declines sawed off gains completely. Thankfully, this was contained; tight rail capacity caused a temporary plunge in agricultural shipments, and the both the auto and industrial equipment sectors underwent fluctuations that are typical in both industries.
Even so, by all counts this shouldn’t really be happening. After all, US GDP growth has recently been doing well, not to mention the ramp-up in European growth. Numbers in both economies are outpacing original expectations, and forecasts have been revised upward. Not to mention that we have the CETA agreement with Europe that kicked in last fall; everyone was expecting dividends, not losses. Layer in the continued rapid growth of emerging markets, and the story ought to be much more positive than our early-year results.
Thankfully, March came to the rescue, proving the underlying strengths powering our exports, and the transitory nature of the things that held us back in the early going. March’s 3.7 per cent growth surge more than erased the losses sustained in the first two months of the quarter, generating overall quarterly growth of 1 per cent. March was strong for another reason: although the Canadian dollar shed 3 per cent of its value against the greenback, it wasn’t the primary driver of monthly growth. The physical volume of shipments formed the bulk of monthly growth, up 3 per cent.
On a sector-by-sector basis, the story was part relief, part inspiration. The agriculture sector surprised with an earlier-than-expected comeback. Aerospace – typically volatile – was up by double-digits, which is the performance we expect for the year. Even more inspiring was the monthly rise in industrial machinery and equipment, which is related to the US economy’s need to ramp up investment. Stateside, many industries are dealing with constraints on productive capacity that are as tight or tighter than they were in the peak years of 2006-08.
This turns our gaze on the future. Are we going to continue the on-again, off-again pattern, or is growth going to become a bit more dependable? Fluctuations will never be a thing of the past in trade numbers, but on balance, March data demonstrate that Canada is currently in the global growth game. A number of factors suggest growth will persist throughout the year. First, the US is facing capacity pressures inside its economy, and will be looking to others to fill in gaps in labour and production. Second, the Canadian dollar is expected to remain weak. Third – and this is more speculative – resolution of the NAFTA deliberations would restore a good deal of certainty to Canadian exporters and their investment plans.
Before today’s data, we were a bit worried about our 6 per cent export forecast for the year. Building on the March result as the year unfolds has us feeling much better about our 6 per cent growth forecast. Global growth has never for us been the worrisome issue; it’s Canadian participation in that growth that form the bulk of our early-year concerns. US industry is still humming, and prospects there, and by extension in the rest of the world, are as good or better than they have been in years.
The bottom line?
‘Up’ is again in Canada’s trade language. March was a great down-payment on growth that should stretch through year-end. Prospects have long looked bright, and once again, we are cashing in.