Record rebound in Canadian trade confidence

After hitting an all-time low at the start of the pandemic, EDC’s Trade Confidence Index (TCI) increased by a whopping 19%—the biggest gain in our survey’s history. With this second straight blockbuster surge, the TCI is now at its highest level in more than 20 years.

This time around, our index rose from 67.5 to 80.5, reflecting the significantly improved prospects for a sustained global economic recovery. The EDC survey, which began in 1999, was conducted between April and June.

Much like in our year-end 2020 survey, the recovery was robust and broad-based. Canadian exporters are growing more optimistic, from coast to coast, on a wide variety of topics. All five TCI index elements rose, led by improved outlooks for overall economic conditions—both domestic and global. All regions made gains, with Quebec taking the mantle from Ontario as “the most trade-confident” region of the country. All firm sizes picked up, especially small companies, who’ve been hit hardest during the pandemic. 

The top reported international business challenge remains connecting with potential customers, an activity that’s become harder to do in person due to restrictions, including those on non-essential cross-border travel.

Trade protectionism remains a concern for one-in-three exporters, with some specifically highlighting “Buy American” issues or tensions in Canada-China relations. Fortunately, our survey suggests protectionism worries have started to wane under the new Biden administration. 

In the past year, the Canada-U.S. dollar exchange rate has steadily strengthened, from a low of 70 cents early in the crisis, into the low-80 cents range. This currency appreciation has awakened from a long-dormant issue to rank near the top of the list of exporters concerns. In fact, almost half (47%) of exporters indicate that value of the currency is “very important” for their ability to compete in international markets.

Most firms expect financing conditions to remain largely unchanged over the next six months. Indeed, our recent COVID-19-impact survey showed that reported financing needs are far less urgent than at the start of the pandemic, reflecting the effective response of government liquidity supports alongside increased banking sector forbearance. 

The number of firms planning to export to new markets and invest outside Canada continues to be high. Two-thirds of respondents plan to export to new markets. And for firms looking to expand their exports, the United Kingdom and Australia are top of mind. In the context of a stronger currency, almost one-quarter plan to invest outside Canada, with a focus on the U.S., China, Europe, and into the United Arab Emirates and Brazil. 

This time last year, COVID-19 case counts were rising, stringent lockdowns were in place across much of the world, and there was little hope of an effective vaccine on the horizon, causing many Canadian exporters to face a once-in-a-lifetime challenge to keep their businesses afloat.

Now many in advanced economies have received a vaccine and Canadian exporter confidence has risen rapidly to heights unseen in decades. EDC Economics expects the global economic recovery to kick into a higher gear in the second half of the year. The broader U.S. reopening will be a key driver as American households draw on their significant accumulated savings to satisfy “pent-up” demand, which may see supply struggle to keep pace. 

Our survey also suggests that an accelerating recovery may bring its own challenges. These include the perennial need to (re)connect with customers, tighter labour markets, supply bottlenecks and shipping delays, a relatively strong Canadian dollar (which benefits import purchasers, but can make it harder to compete on price in export markets), and perhaps continued pockets of protectionism. 

While we’re thrilled with the current survey results, we look forward to our year-end TCI survey in December to check in on the trade recovery, and find out if Canadian exporters’ exuberance will continue.