LONDON, April 27, 2005 -- Export Development Canada (EDC) says Ontario exports are forecast to grow by 3 and 2 per cent in 2005 and 2006, moderating from a red-hot 6.5 percent pace of expansion in 2004, according to EDC's semi-annual global export forecast. "Provincial economic growth will be tempered by flat shipments of automotive products and moderating sales of energy and industrial goods," says EDC Senior Vice-president and Chief Economist Stephen Poloz. "Despite a moderate export forecast, we expect Ontario's total provincial exports to perform slightly better than the national average and in line with the slower pace of global economic growth." The automotive and transportation sectors recovered in 2004 but are projected to show zero and negative growth, respectively, in 2005. After surging 5.1 per cent in 2004, Ontario's exports of motor vehicle products will stagnate this year and Ontario's transportation exports will continue last year's disappointing performance, dropping 7 per cent in 2005. However, export growth is forecast to return to positive territory in 2006, if only marginally, offset by a fall in aerospace products, which account for more than half of Ontario's transportation exports. This downward trend in aircraft sales will continue through 2006, but rising railway and seaway freight traffic will begin to underpin exports for the broader industry. Rising U.S. interest rates will curtail automakers' ability to maintain incentives at current levels, depressing U.S. demand for cars and light trucks. Meanwhile, auto parts producers will perform well through the forecast period, thanks to increases in global assembly capacity, including the North American market. "We project U.S. auto sales to drop from last year's 16.9 million units to around 16.5 million in 2005," adds Mr. Poloz. "But in 2006, we expect a 3 per cent rebound in automotive exports as U.S. labour markets improve and new models are introduced." Strong global demand for manufacturing inputs and robust commodity prices will continue to support Ontario's exports of industrial goods, which will climb 8 per cent in 2005. Though industrial goods account for only 23 per cent of Ontario's exports, they will be responsible for the bulk of the increase in provincial exports, with a contribution exceeding CAD 3.0 billion. Chemicals, plastics and metals - especially iron, zinc and aluminum - will be this year's main sources of growth. However, falling prices are expected to deflate shipments by 1 per cent in 2006. "EDC predicts moderate, broad-based export gains across most sectors, including mining, agricultural and heavy industrial machinery over the forecast period," says Mr. Poloz. "This year we expect to see Ontario's exports being led by industrial goods such as metals, chemicals and plastics while exports of high-tech goods and machinery have turned the corner as well." Robust corporate profitability, cheap money and aging capital equipment will continue to spur U.S. and global investment spending this year. Ontario, being the nation's leader in machinery and equipment (M&E) products, will continue to benefit from this trend over the next two years and will see exports increase 5 and 4 per cent in 2005 and 2006, respectively. Healthy demand for IT products, which account for over 42 per cent of Ontario's M&E sales, will again lead this year's upturn. While most other sectors will see either reduced or zero-growth in 2005, energy sector exports will continue to post the highest growth among the province's industries. Energy exports will expand by 13 per cent as favourable pricing and demand continue to boost refinery activity and coal extraction. In contrast, 2006 will see the sector lost most of the ground gained this year, owing to falling prices and generally slower demand conditions. Accelerating exports of agri-food products should result in growth of 4 per cent in 2005 and 7 per cent in 2006, after rising only 2.6 per cent in 2004. Strong economic activity and improving employment conditions in the U.S. will continue to spur demand for prepared food and beverages, which make up about 60 per cent of the province's agri-food exports. However, the present U.S. freeze on Canadian live cattle and beef imports will continue to weigh on the headline numbers. Prospects for Ontario's forestry exports still appear bright. Export shipments will continue to grow a steady 4 per cent in 2005 on the back of rising prices. However, this masks many of the difficulties facing the sector, including high electricity costs, a strong Canadian dollar and some of the highest wood fibre costs in the northeast. Consumer goods exports, on the other hand, will continue the downward trend that began in 2001, falling 1 per cent this year and 2 per cent in the next, due to increasing competition from low-wage nations, a strong Canadian dollar and the broader historical decline in Ontario's clothing industry A copy of EDC's semi-annual Global Export Forecast is available on EDC's web site: http://www.edc.ca/docs/ereports/gef/EFindex_e.htm EDC is a Crown corporation that provides trade finance and risk management services to Canadian exporters and investors in up to 200 markets worldwide. - 30 - Media contact: Glen Nichols Public Affairs (613) 598-2876 gnichols@edc.ca
