TORONTO – April 22, 2008 – Export growth is expected to remain flat until mid-2009 as the global economy continues to slow, according to the quarterly Global Export Forecast released today by Export Development Canada (EDC). The title of the forecast is "Now What?", a reference to the heightened uncertainty that exporters and analysts are experiencing in assessing the current global economic slowdown.
"Like a hard-fought chess game, the Canadian economy has made very good moves in adverse conditions over the past two years and stayed out of trouble. But suddenly we're in check," said Peter Hall, Vice-President of Economics and Deputy Chief Economist. "While it took longer than expected for the US housing crash to spread, there is little doubt that we are in the middle of a significant slowdown. What remains uncertain among exporters is the depth and length of the downturn."
EDC believes that deteriorating fundamentals, namely the still-strong Canadian dollar, the economic slowdown in the U.S. and lower commodity prices, will catch up with Canadian exporters this year. Overall, EDC forecasts total exports to fall by 2 per cent in 2008, with broad-based losses across most sectors, except for key commodities associated with tighter global food and energy markets. EDC anticipates meagre growth of 2 per cent in 2009, in line with mildly recovering global growth.
Easing global demand, the bottoming-out of the US dollar and a retreat in commodity prices will help deflate the Canadian dollar over the forecast period. While lower short-term interest rates in Canada will support the currency's depreciation, EDC believes that the effect will likely be marginal as US short-term interest rates fall even further. As such, the Canadian dollar will trade around parity for most of the first half of 2008 before falling away during the second half. By year-end 2008, the Canadian dollar is expected to be trading in the range of USD 0.86 to USD 0.90.
"Looking forward, growth will be very lean until at least mid-2009. Excesses on the U.S. consumer front are simply too great to allow for a snappy 2001-style recovery," continued Mr. Hall. "Even a significant dose of well-timed stimulus won't be enough of an antidote."
The slowdown in the U.S. has now spread from the consumer and is more generalized among other parts of the economy. Growth in the Eurozone is also expected to slow amid hawkish policy positions by the European Central Bank's (ECB). Forward-looking indicators in Japan continue to suggest a recession, while the U.K. economic outlook has deteriorated due to housing market weakness and consumer excesses. Accounting for nearly half of global GDP, weakening in these markets will lower global growth to 3.8 per cent in 2008 and 2009.
Emerging markets will not escape the current global downturn unscathed. Economic growth is expected to slow to 6.8 per cent in 2008 and 6.4 per cent in 2009, down from 7.6 per cent in 2007. On a positive note, while emerging market growth will be slower, it will not be as slow as in previous global downturns. Emerging markets today have a greater ability to handle the current wave of financial turbulence than in the past. Four years of strong global demand, surging commodity prices and elevated liquidity have allowed many countries to lower and improve their public debt burdens, strengthen government balances, and accumulate significant foreign exchange reserves. They have also improved policy credibility and implemented productivity enhancing reforms.
By industry, this year's contraction in exports will be broadly-based. Declines will hit 9 of 13 broad industry categories. Take away the high-flying energy and agriculture sectors, and the overall growth picture is considerably bleaker. Export growth by province will be varied. Gains will be strongest in Saskatchewan, Manitoba, Alberta and New Brunswick, all riding on the strength of the agriculture and/or energy sectors. Significant declines will hit Ontario and Quebec this year, owing to industrial mix and dependence on the US economy.
EDC's semi-annual 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 risks for which exporters should be prepared. The Forecast is available on EDC's website at http://www.edc.ca/gef.
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 has been named one of Canada's Top 100 Employers for seven consecutive years.
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Media contact:
Phil Taylor
Export Development Canada
Tel: (613) 598-2904
Blackberry: ptaylor@edc.ca
