Trade confidence among Canadian exporters hits all-time low

With the economic shock from the COVID-19 pandemic and lockdowns being felt across the world, Canadian trade confidence plummeted to its lowest level on record. Export Development Canada’s (EDC) headline index tumbled by 19%, falling from 69.3 to 56.0.

Our latest Trade Confidence Index survey was conducted in May, during an unquestionably tough time for many exporters. The economy was likely just beginning to crawl out of a very deep hole, with some provinces starting the initial phases of gradually relaxing COVID-19 containment measures. 

COVID-19 is the culprit: The headline drop isn’t surprising. Indeed, most other surveys of most other economic variables have been doing much the same thing lately, as we all adjust the y-axes on our charts to accommodate the bad news.  

The details within our survey illustrate just how significant the COVID-19 shock has been for Canadian exporters. The decline was broad-based, hitting all five TCI components, all sectors of Canada’s economy, and all regions of the country. 

The largest sectoral drop occurred in “transportation,” consistent with our latest Global Export Forecast, which foresees export declines in 2020 of roughly 30-to-35% for autos and aerospace. Transportation sits right below “extractives” in the sectoral rankings, and Canada’s oil exports are due for a similar eye-popping drop this year, given the massive fall in global prices, which have only recently begun to rebound.  

Almost three-quarters of respondents say the pandemic has had a negative impact on their sales, with half reporting a “high negative” impact. Some businesses (14%) have seen stronger sales due to COVID-19. In either case, most (64%) expect this to be a persistent shock, with sales impacts expected to carry into 2021. 

Global economic conditions are the No. 1 reported challenge for Canadian exporters at this time. Respondents told us they expect the global recovery to be slow and choppy, with the potential for multiple waves of infections and stop-and-starts ahead of us. 

Don’t forget about rising protectionism: It’s not only pandemic worries causing sleepless nights for some exporters; concerns of global trade protectionism are also rising. More than two-thirds (69%) of respondents expect protectionism to increase in the year ahead. This was up dramatically to nearly double the size of our last survey.

Protectionism is affecting the global strategies of a significant portion (39%) of Canadian exporters. What’s more, almost one-third (31%) cite negative impacts from Canada-China trade tensions. In conjunction with the recent United States-China Phase One trade deal, this has put some Canadian exports to China at risk, most notably soybeans, lumber, seafood, and pork.

Record diversification push: At this tumultuous time, it’s heartening to see Canadian exporters increasingly diversifying their global footprints by exporting to new markets and investing outside of Canada. The share of respondents with investments outside of Canada increased once again, to its highest level on record (20%). And the share of respondents exporting to new markets —and those planning to do so—also rose to new survey highs.

Top destination markets include the U.S., the perennial favourite, as well as the United Kingdom, Germany and France, consistent with the heightened interest in doing business with Europe since the Comprehensive Economic and Trade Agreement (CETA) has provisionally come into force.

How are firms planning to reach these new markets? It seems to be more via capital than labour. Although exporters’ hiring plans are weakening, investment plans have picked up. Capital spending is much needed—particularly to quickly build firms’ digital capabilities—and will be a key part of economic reconstruction efforts.

The most recent TCI reading continues a troubling trend that started long before COVID-19. Since mid-2018, the TCI has fallen in four straight surveys, for a total decline of 27%, and now sits at its lowest level in more than 20 years of our survey’s history. 

Although we’ve seen many measures hitting all-time lows, there’s also some good news. In the midst of a crisis, Canada’s exporters are looking across the globe to find new consumers, and we’re seeing record highs for the share of firms exporting to, and investing in, international markets.

With any luck, if the high-frequency indicators are right, the worst of COVID-19 may now be behind us. And in our next TCI release in December, we’ll have better results to share with you. Until then, stay safe.