TORONTO, April 25, 2005 -- Export Development Canada (EDC) says that conditions are ripe in 2005-2006 for significant improvements in Canadian productivity. In its semi-annual global export forecast EDC sees Canada's slow productivity growth - the one blemish on an otherwise spotless economic record - likely to improve as a result of strong global and domestic economies, and the availability of money and a strong dollar favouring investment in capacity both at home and abroad. "Canada is currently well positioned to use international trade to boost our productivity," says EDC Senior Vice-President and Chief Economist Stephen Poloz. "The first phase of productivity improvement is already in place as the expansion of 2004 enabled many companies to mop up their idle capacity. Increases in profitability, low borrowing costs, a healthy stock market and strong lending capacity set the stage for the second phase of an upswing." EDC says that while world economic growth has moderated in 2005, it has not done so as quickly as anticipated so Canadian exporters still continue to enjoy a favourable market for export growth. A stronger Canadian dollar also encourages the development of global supply chains, and has made investment in imported machinery a bargain for Canadian business. The result is a greater opportunity for productivity gains. EDC notes that of all factors pointing to productivity gains, foreign investment by Canadian companies is the most promising. "Canadian companies are well positioned to duplicate the productivity miracle pulled off by the U.S. manufacturing sector," says Mr. Poloz. "U.S. company use of foreign suppliers has greatly increased within-company trade, permitting greater specialization and productivity at home. The time is now ripe for Canadian companies to activate similar strategies." EDC's country and sector analysis of the global economy indicates another two years of above-trend growth. While moderating from a too-hot 5 per cent pace in 2004, anticipated growth rates of 4.2 and 4.1 per cent over the next two years still provide a solid base for Canadian exports. Nevertheless, EDC forecasts that Canadian export volumes will slow to a modest 3 per cent for both 2005 and 2006, well down from the 5.6 per cent growth rate of 2004. At 7.1 per cent, economic growth will continue to be highest in the Asia and Pacific region. China and India will lead the way with growth rates of 8.6 and 7 per cent respectively, compared to 9.5 and 6.9 per cent in 2004. The U.S. economy will moderate to 3.5 per cent growth from 4.4 per cent in 2004. EDC also expects a drop in South American growth from 6.2 per cent last year to 4.3 per cent in 2005. Sluggish conditions will persist in western Europe where growth will dip slightly to 1.7 per cent from 1.9 per cent. Central and eastern Europe will expand by a respectable 5.6 per cent in 2005, down from a torrid 2004 pace of 7.3 per cent. Sound domestic fundamentals will enable Canada's economy to generate 2.4 per cent economic growth in 2005, and 2.9 per cent in 2006. The EDC forecast says that the developing world offers the best economic conditions and lowest risks in at least eight years. Rapid growth rates and heavy investment in new infrastructure is leading to the return of foreign investment capital to the developing world. Canadian exports to those markets showed exceptionally strong in 2004, and indicators point to continuing good performance in 2005 and 2006. Global economic growth in the past year has been stronger than anticipated with most major currencies responding favourably to the economic rebalancing. The resulting boost to energy and other commodity prices has pushed the Canadian dollar above earlier projections. EDC expects the Canadian dollar to settle in close to US 77 cents by the end of 2005 and to maintain a gradual downward course through 2006 as energy prices drop and as non-energy commodity prices stabilize. While EDC expects export growth to slow in 2005 and level off in 2006, certain key sectors will still perform well. Canada's machinery and equipment producers will continue to benefit from rising business investment as companies around the world seek to reduce costs by employing more productive capital. The high tech and telecom sectors got back on their feet in 2004 and will grow steadily through 2006. Energy exports will enjoy another good year, but export values are expected to decline in 2006. Other resource-based products such as metals, chemicals and fertilizers fit into this pattern as well. Forestry products will see the dollar value of export receipts level off in 2005 as prices ease back while demand for lumber and other wood products remains fairly steady. Automotive shipments should level off in 2005, while aerospace remains weak. However, there are some bright spots in the aircraft sector - parts, helicopters, overhaul and maintenance should continue to do well. "Canadian exports rebounded in 2004 after three years of declining sales," says Mr. Poloz. "Higher raw material and energy costs in the second half of 2004 and the appreciation in the Canadian dollar have made for a tougher business environment. While those challenging conditions will continue through 2005, productivity improvements will enable exporters to hold their own." With a strong world economy and growth rates not moderating as quickly as anticipated, EDC cautions that the danger of a more vigorous and potentially destructive interest rate cycle are higher now than last year, and bear watching. EDC also notes that geopolitical risks remain high in some parts of the world and the global market for oil carries a substantial risk premium as a result, and that foreign exchange markets remain uncertain and volatile. The Global Export Forecast addresses the latest global export conditions including perspectives on interest rates, exchange rates, as well as export strategies to help Canadian companies minimize risk. It also analyzes a range of downside risks for which exporters should be prepared. 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 Telephone: (613) 598-2876 glnichols@edc.ca
