Canadian Export Sales Expected to Rise by 6 Percent Next Year

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Oct 28, 2002

Canadian Export Sales Expected to Rise by 6 Percent Next Year

Canadian export sales continue to recover across many industries and are expected to rise by 6 percent next year, according to the latest global export forecast released by Export Development Canada (EDC).

"The global economy is at the mid-point of a rough crossing and will take until the end of next year to reach home," says EDC vice-president and chief economist Stephen Poloz. "When seas are rough, it can be difficult to tell whether the tide is coming in or going out but calmer waters are on the horizon."

EDC forecasts world economic growth of 2.6 per cent this year and 3.5 per cent next year. Canada's economy is expected to grow by 3 per cent this year, supported by a gradual return of export sales to early-2001 levels, and to expand by 3.7 per cent next year.

"The threat of terrorism, loss of faith in corporate behaviour, weak stock markets have created a level of financial and economic volatility rarely seen," says Poloz. Chief among these was the series of revelations of corporate malfeasance. The resultant decline in world stock markets has raised concerns that consumers in Europe, the U.S., Japan and Canada, nearly 65 per cent of the world economy, may falter.

But Poloz believes there have been two profound shifts in consumer psychology; a new willingness on the part of consumers to live for today and a loss of faith in equity markets. "What this means is that consumer spending will not track declining consumer confidence as closely as it has in the past. Weak stock markets will be less likely to cause lower future spending and weaker economic growth. And it means that the increased interest in real estate is unlikely to be a passing fad."

Most industry sectors are expected to benefit next year from stronger global economic conditions. Commodities and other raw materials will also see a better pricing environment. The sectors where weak demand will linger are telecommunications, computers, aerospace and ground transportation equipment. Global demand for industrial machinery and equipment will also be slow to recover because of high levels of excess capacity in many industries.

This year, exports of services, consumer goods, autos, metals, chemicals, plastics and fertilizers are offsetting declines in telecommunications equipment, computers, transportation equipment, grains and forestry products. Export growth will likely end this year at 1 per cent over 2001.

Asia is again expected to offer the best opportunities for Canadian companies selling abroad next year and sales should rise by 12 per cent, building on the 5 per cent increase this year. Exports to the U.S. should increase by 5 per cent next year following a 1 per cent rise this year. Sales to Western Europe, Japan and South America should also rebound next year after decreasing this year while export prospects in Central and Eastern Europe are expected to be strong with growth of 9 per cent next year.

The U.S. economy should achieve 2.7% growth next year and Mexico's growth will accelerate to above 4 per cent. South America will lag this upturn, but will show significant improvement nonetheless, especially Brazil and Chile. Europe will post growth next year of 2.7 per cent but growth will be higher in the emerging economies of Eastern and Central Europe. Growth in Africa should average 3.5 to 4 per cent next year.

Provincially, next year should see the emergence of more balanced growth across the provinces. This year, Newfoundland and Labrador are leading all other provinces with about 20 per cent growth over the previous year. Ontario and P.E.I. were the only other provinces to grow their export sales this year.

"Global competition will continue to be fierce, profit margins will remain tight, and corporate stress and bankruptcy rates will be well above average in this environment," adds Poloz.

By early next year, some of the same economic conditions that prevailed early this year will reappear, and the Canadian dollar should appreciate in that environment to about 70-cents US late next year.

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