Trade Confidence Rises - Moderately

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By Peter G. Hall *
Vice-President and Chief Economist Export Development Canada

Two words that could be considered arch enemies are ‘up’ and ‘confidence’. They’ve had a long, five-year falling-out, and we could be forgiven for thinking that they will ever make amends. Maybe Canadian exporters are beginning to play peacemaker. Canadian trade confidence actually rose in the spring – a moderate increase, but an increase nonetheless, and at a time when sentiments could easily have soured. Are the details behind this uptick inspiring?

Moderate moves don’t usually inspire, but this time could be different. EDC’s Trade Confidence Index has been on a wild ride since the spring of 2007, and since the Fall 2009 survey, it has failed to move in the same direction in back-to-back surveys. The latest result moves the Index to a level that’s pretty close to the 2003-07 average, when exports were capitalizing on stronger global growth and greater global diversification of sales. It also occurred at a turbulent time, as exporters were still tallying the impact on sales of Hurricane Sandy, the US fiscal cliff and more recently, sequestration.

Two of the five Index elements accounted for most of the increase. Views of international business opportunities in the coming six months posted the largest single gain, rising 14 percentage points since last fall. Perceptions of world economic conditions – recently, the lowest-scoring Index factor – jumped 13 percentage points, boosted by both improved expectations for the European economy and a belief that markets will turn around. Movements in the remaining three Index factors were marginal.

Results broken down by industry sector were not uniform. Every industry category but one registered increases, with the sub-index including the forestry sector posting the single largest gain since the Fall 2012 survey. The exception was the sub-index covering the mining, oil and gas industries, which tumbled by over four Index points to the lowest score among the industry groupings. Soft commodity prices and transportation constraints are the likely factors behind the weakness in this category.

Among Canada’s regions, confidence saw its largest increase in Atlantic Canada, where the sub-index rose 5.6 points to 73.5, securing top spot. Quebec also posted a decent gain in the spring, rising 4.4 points. Ontario’s upward move was more modest, and Western Canada – still recording high overall confidence – edged down marginally in the latest survey.

In recent years, the Canadian dollar has been a worry for exporters. However, the Spring survey shows that a majority of respondents now feel very prepared for a loonie at or around the parity level. The current reading saw a 9 percentage point jump, to 55 per cent of those polled. An additional 41 per cent of exporters feel moderately prepared for a dollar at or close to parity with the US dollar.

While the more upbeat results in the current survey buck sentiments in most other places on the planet, there is good reason for the move. Since last October, merchandise exports have been growing at a 12 per cent annualized clip, with a broad number of industries contributing to the increase. That’s impressive, given the turbulence of US growth over this period, the sluggish European economy and the uncertainty surrounding emerging market growth. It suggests that, in spite of headwinds, the rotation of Canadian growth from internal to external drivers is occurring.

The bottom line? Canadian trade confidence remains on a see-saw, but there are strong factors underpinning the modest gain in the Spring 2013 survey. We can all hope that Canadian exporters are right, and that markets are indeed set for a turnaround in the coming six months.


JULY 2018

Vol. 12 - No. 12


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