Canadian exports buck global economic slowdown, will be benefit to economy: EDC
OTTAWA — Canada’s export agency is sounding an optimistic note for the prospects for one of the economy’s most critical sectors that stands in sharp contrast to the distinctly bleak outlook of the Bank of Canada and other forecasters.
Export Development Canada said Monday that shipments to the rest of the world are holding up well in the face of a global slowdown, and will likely do so again next year with gains of 11 per cent and seven per cent respectively.
In its latest review of the global economy last week the Bank of Canada blamed exports, which represent about one third of the economy, as the primary reason Canadian growth will slow to below one per cent in the last three months of 2011 and remain modest at 1.9 per cent in 2012.
But EDC disagrees with the assessment, judging that exports will add 2.3 per cent to Canada’s gross domestic product performance this year and 2.4 next.
“Canadian exports have been remarkably resilient,” said EDC chief economist Peter Hall. “The recession wiped out one quarter of our trade, but by mid-2012, we will have recovered all of the momentum lost.”
The bank’s analysis, supported by many private sector economists, is that market turmoil brought about by European debt issues, weakness and political gridlock in the U.S., and slowing growth in emerging economies, will soften demand for what Canada sells the world.
But Hall said the forward indicators he sees just don’t support that view.
“It doesn’t seem to matter where you are in the world, orders are rising aggressively. We’re seeing double-digit increases in new orders in the United States, Canada, France, Spain, Italy,” he explained.
“I have to come to the conclusion that (given global uncertainty) somebody is not going to put in an order to shove it into inventory. I’m wagering they are pretty sure they’ve got a final sale waiting.”
Hall said he agrees that the global economy has gone through a rough patch, but believes that was because of extraordinary bad luck, rather than an underlying weakness to the recovery.
Starting in January, the world has undergone a series of natural and political shocks that have set the recovery off kilter, starting with massive flooding in Australia. That was followed by the Japan earthquake and tsunami, flooding and tornadoes in the U.S., and even now, flooding in Thailand.
Those events disrupted supply chains, he said, and even the Arab Spring political uprisings were a negative for the global economy, boosting energy prices and taking money out of the pockets of consumers and slowing demand for other products.
Canada is fortunate in having an abundance of natural resources and hence could take advantage of the higher commodity prices, Hall noted.
But exports of goods held up as well, he added, despite the persistently strong dollar.
“We’ve got exports of industrial machinery and equipment up 11 per cent (this year), and the auto sector, after a 32 per cent increase in 2010, we’ve got it growing six per cent this year and looking strong next year.”
Hall said the big difference between the EDC’s view and that of the Bank of Canada is that he believes the U.S. — and the world in general — will perform ahead of the bank’s expectations, supporting Canadian exports. He and the bank agree that the dangerous booby-trap out there remains Europe, particularly if the continent’s debt issues trigger a financial crisis that causes a market panic.