Peter Hall headshot, EDC
Peter G. Hall Vice-President and Chief Economist Export Development Canada Peter G. Hall

Global trade has staged a robust recovery following the initial onset of the pandemic, confounding most forecasts. While the general expectation was for a more drawn-out recovery similar to that of the 2008 global financial crisis, this time around, it was decidedly a V-shaped recovery. Since that initial rebound, progress has been more halting, as further waves of infection resulted in full or partial shutdowns from one country and region to another.

World export volumes continue on an upward trend, and are currently 6% above pre-pandemic levels. Behind this good news is an uneven performance between advanced economies, where exports are collectively up by just 1.5%, and emerging markets, up a scorching 16%. This imbalance in activity is directly related to the pandemic, and has upended global supply chains, with frictional logjams frustrating the movement of goods everywhere.

Amid the mayhem, demand remains strong, supported by solid pre-pandemic fundamentals and a significant groundswell of pent-up demand as the policy response temporarily closed key parts of the economy. This demand is the fundamental driver of a forecast that projects a robust rise in global exports this year and next, with above-average growth also spilling into 2023.

The pattern of global recovery is reflected in exports of Canadian goods. Shipments to the world are now up 10% over pre-pandemic levels, and have shown particularly impressive growth in the past three months. However, progress is still very uneven. The auto sector shut down almost completely, only to rebound in weeks to more than 100% of pre-pandemic shipments. As a consequence of the global semiconductor shortage, exports are now back to 75% of pre-pandemic levels and holding. 

Currently, seven of 11 merchandise export sectors are well above pre-pandemic exports, led by forest products and mining, where global demand remains red-hot. Chemicals and plastics are also doing well, and energy exports have catapulted back into the black following the drubbing they suffered in the early days of COVID-19. Food and consumer goods exports also remain strong.


Globally, and in Canada, services trade continues to suffer a more persistent L-shaped setback. Although commercial services have held up well, border restrictions and mandatory quarantines continue to beset cross-country travel and transportation. As restrictions are lifted, Export Development Canada’s (EDC) Economics team expects growth to surge after an initially-tentative rebound.

With strong demand continuing to power growth, we expect the world economy to continue expanding at a rate that is well ahead of the long-term trend both this year and next. Greater openness and persistent demand strength will also carry above-trend growth into 2023. After 6% growth this year, the world economy is forecast to expand by 5.5% in 2022.

After sustaining a 13% drop in 2020, Canadian export growth is estimated to rise by 17% this year, and by just 3% in 2022. Weakness next year is concentrated in forestry exports, where prices will come down from their unsustainable highs to levels that are still well above the pre-pandemic average. Lower prices will also weaken energy exports and have a similar impact on shipments of ores and metals. In contrast, the auto sector, aerospace, industrial machinery and equipment, advanced technology, and services will all get a double-digit payback for their patience as 2022 unfolds.

Prices play a huge role in our current Global Export Forecast. Growth this year is in large part fuelled by a 14% increase in prices, notably for energy, base metals and wood products. As prices generally back off in 2022, volume shipments rise by 6%, in synch with the return of order to global supply chains and shipping networks. 

Canada’s exports to advanced economies will outperform exports to emerging markets this year (+22% versus +13%). Among our major trading partners in 2021, Canada’s exports to Japan are now the strongest performer; initially China’s fast rebound made it the front-runner. However, through this year Japan, the United States and Germany have caught up and surpassed China. After taking an initial pummelling, exports to Mexico have clawed their way back to the pre-pandemic marker, likely held back by the auto sector woes. As such, we expect better things for exports to Mexico next year.

The bottom line?

With the COVID-19 pandemic still making its mark on the world economy, juxtaposed against strong pent-up demand, our outlook is subject to a higher-than-usual degree of uncertainty. Pandemic containment remains critical, although there’s evidence that we’re getting to the more stable endemic phase. Even so, there’s a likelihood that an adverse development sets us back into some form of lockdown. Equally, pent-up demand could bring a surge of growth that requires a ramp-up of business investment, taking growth well above our short-term forecast. For the time being, our base case scenario assumes COVID-19 outbreaks will be relatively contained in Canada and our largest trading partners over the medium-term, which should result in less economic disruptions than have already occurred. 

 

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.