TORONTO, November 2, 2005 -- Although global growth will remain healthy in the near term, it will moderate significantly through 2006 according to the semi-annual Global Export Forecast released today by Export Development Canada (EDC).
"Canadian exporters find themselves in a very stressful environment with little relief in sight, leading us to label 2006 as the ‘year of the downgrade'," said Stephen Poloz, Senior Vice-President, Corporate Affairs and Chief Economist of EDC. "Economic growth and export sales are moderating, and will moderate further in 2006. Interest rates are rising, and they will rise further. The dollar is at a very high level, and is likely to remain high unless there is a sudden correction in oil prices."
EDC is forecasting 4.2 per cent global economic growth in 2005 and 4.1 per cent growth in 2006, down noticeably from 5.1 per cent in 2004. In Canada, economic growth is forecast to remain steady at 2.8 per cent in 2005 and 2.9 in 2006. Economic growth in the US is forecast to slow to 3.5 per cent in 2005 and in 2006, down from 4.2 per cent in 2004.
Global growth in recent years has fueled strong demand for the world's primary resources and led to a surge in prices, most notably in energy and base metals. The rise in energy prices has boosted measured inflation, raising concerns of a broader acceleration in price increases. EDC notes that outside of the energy sector, core inflation has remained relatively stable. Forecasting a modest interest rate cycle along with some easing of resource pricing (including oil), EDC expects the Canadian dollar to head lower, but to remain above 80 cents in 2006.
"This combination is a recipe for a mild dose of Dutch Disease, which sees non-energy sectors being squeezed as the energy sector booms," continued Mr. Poloz. "However, the good news is that this is also a recipe for productivity growth, with the strong dollar dramatically reducing the cost of purchasing new equipment and globalizing supply chains." The easing in global economic activity will produce a corresponding slowdown in Canadian export growth. The value of Canada's exports of goods and services is expected to rise by 4 per cent in 2005 and a further 3 per cent in 2006, down from the 8 per cent expansion in 2004. Canadian export sales in developing markets are on track to once again outperform shipments to the industrialized countries. On average, Canada's exports to the developing world are expected to finish 2005 with a gain of 11 per cent compared with 3 per cent for the industrialized countries. EDC expects to see a similar split in 2006 with exports to developing markets growing by 8 per cent compared with a 2 per cent increase for the industrialized world.
The leading export sectors in 2006 will be agri-food and fertilizers, both at 8 per cent. The softest sectors will be the consumer goods and ores/metals, shrinking by 4 per cent and 5 per cent, respectively, with the latter owing to weaker pricing. Most sectors will be clustered around a 3 to 5 per cent export growth rate in 2006, with aerospace at 6 per cent, telecom at 5 per cent, energy at 5 per cent, services and machinery/equipment at 4 per cent and motor vehicle at 3 per cent. The forestry sector will continue to struggle, although 2 per cent growth is expected in 2006.
The highest rate of export growth in 2006 will be Manitoba at 9 per cent (up from 5 per cent in 2005), New Brunswick at 7 per cent (after posting 8 per cent growth in 2005) and Saskatchewan at 6 per cent (still healthy despite a decline from 11 per cent in 2005). Not surprisingly, the leveling of oil prices will taper growth in provinces with large energy sectors, with Alberta at 4 per cent (12 per cent - 2005) and B.C. at 3 per cent (7 per cent - 2005). Newfoundland and Labrador will stabilize in 2006 following a 5 per cent contraction in 2005, as will Nova Scotia with a rise to 3 per cent from a contraction of 6 per cent in 2005. The divergence between exports of commodities and manufactured goods is expected to narrow in 2006 as prices for energy and other resources level off.
"The descent from the global economic peak will be tough for some exporters. But Canadian companies are not standing still and the signs of productivity improvements are already showing themselves," added Mr. Poloz.
EDC's Global Export Forecast is available at http://www.edc.ca/docs/ereports/gef/EFindex_e.htm.
Export Development Canada (EDC) is Canada's export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC's knowledge and partnerships are used by 7,000 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and is a recognized leader in financial reporting, economic analysis and human resource management.
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Media contact:
Phil Taylor
EDC Public Affairs
(613) 598-2904
ptaylor@edc.ca
