Canada's Expected Export Boom

There is exciting conversation bubbling around the EDC’s (Export Development Canada) report released on Wednesday April 29^th, 2014. The report forecasts, in detail, the expected export boom in store for Canada in the wake of global economic recovery.

This forecast is driven by two key factors: “a significant boost from a weaker Canadian dollar, projected to remain in the 93 cent range over the next 2 years, as well as a sharp pick up in US economic activity that will drive growth next year” (EDC).

Despite the fact that a falling Canadian dollar sounds like a bad thing, it actually has its advantages for economic growth, mainly investment in Canadian markets, tourism, and increased trade (aka increased export activity); if it is cheaper to do business with us, many will take advantage.

According to EDC, “the lower Canadian dollar could add as much as a half-percentage point to GDP growth this year, through stronger exports and import growth that lags behind.” This ‘lag’ in the export market was commented on by Bank of Canada governor Stephen Poloz just a day before the EDC published their forecast, on Tuesday April 28^th in his testimony before the Commons finance committee. Poloz mentioned that despite economic recovery, Canadian exports saw only marginal improvements and were still missing out on $40 billion in export revenue: “right now we have about $35 to $40 billion fewer exports than our models would have predicted at this time (in the global and U.S. economic recoveries)” (Beltrame).

Poloz further stipulates that the “loss in export capacity has been the principal reason Canada’s economy continues in the slow lane at about 2% growth,” as well as Canadian companies ‘playing it safe’ through the recession and “holding back on investments and hiring” (Beltram). Poloz closed his testimony with a cautionary note that the Canadian export sector needed to see drastic improvement to “push the economy into a self-sustaining growth path” (Beltrame).  

Ultimately, Poloz believes that “Canadian exporters are not competitive enough,” as “about 78 per cent of Ontario’s 18,600 exporters sell in the U.S.” while the UK, “the province’s second-largest trading partner, gets about 6 per cent of Ontario’s exports” and only “seven per cent of exports went to emerging markets” (Acharya-Tom Yew). And those are just the statistics of Ontario alone. Essentially the sentiment is that Canada needs to be getting its hands into many other pies instead of relying so heavily on our southern neighbour.

Luckily, since we do rely so heavily on the U.S., with its economic recovery and a strengthening global economy, an export boom is in fact a promising possibility on the horizon. Furthermore, Exporters are actually feeling like “they can lower their prices and be more competitive in the global marketplace” (Beltram), and the EDC noted that many of Canada’s exporting industries “still have a decent amount of spare capacity, and can ramp up activities to meet demand.” There may be a few issues that need to be addressed, like transportation capacity to export, something that came to light with the 2013-2014 surprise of crop over-production: “Canada’s farmers produced 27% more grains and oilseeds for the crop year, a staggering 90.1 million tonnes. This was largely because of ideal weather conditions, which led to much higher yields in spite of late seeding” (EDC). A good year for agricultural production, but the over-abundance of grains put a strain on transportation, which proved to be wanting or inadequate to handle such unforeseen over-production. Although this is an uncommon occurrence, now that the weakness is known, it can be fixed, and just in time too for higher production for Canadian export demand.

Finally, another reason that Canada is poised for export growth has to do with how we weathered the economic crisis over the past 5 years: “Canadian exporters switched sales into the domestic economy during the crisis, given Canada’s resilient performance. Domestic weakening will free up this sales capacity for foreign markets” (EDC). In other words, as the domestic investment declines, more product will be available for foreign exchange, and indeed exporters will be forced to engage more readily in foreign exchange to remain financial stable, and indeed why wouldn’t they when the demand will be so readily available.

According to the EDC, “Export growth will be powered by accelerating activity in the machinery and equipment, aircraft, metals, chemical/plastics and consumer goods sectors, and yet another double digit year for forestry products.” 

Canadian Merchandise Export Forecast by Province
Provinces	CAD Mn 2013	% Share of Provinces' Total Exports 2013	Export Outlook (% growth) 2013	Export Outlook (% growth) 2014	Export Outlook (% growth) 2015
Newfoundland and Labrador	11.8	2.7	4.8	8	3
PEI	0.9	0.2	6.9	9	6
Nova Scotia	4.2	0.9	10.1	8	3
New Brunswick	14.5	3.3	-2.3	3	3
Quebec	64.4	14.5	3.6	4	7
Ontario	164.2	37.1	1.0	6	7
Manitoba	12.6	2.8	10.7	10	4
Saskatchewan	32.3	7.3	2.8	8	2
Alberta	103.3	23.3	7.7	8	5
British Columbia	33.3	7.5	5.9	8	7
Territories	1.7	0.4	-19.4	5	8
Total Goods Exports	443.1	100.0	3.6	6	6

Sources: Statistics Canada, EDC Economics

*Includes EDC estimate for crude oil (*not included in national total from Statistics Canada)

EDC Forecast by Industry

Energy exports will increase due to gains in crude oil volumes and higher natural gas prices in 2014 and 2015, and expected higher coal volumes in 2015. Natural gas alone is expected to see a 17% export increase in 2014 (EDC).  This forecasted performance is expected to be “driven entirely by pricing gains and a rise in revenue from the weaker loonie” (EDC).

Ores and Metals exports will see modest growth, but will face a “bearish pricing environment” which will challenge a revival of “global demand and production increases (EDC).

Agri-Food exports will be supported by “strong emerging market consumption alongside moderate growth in the use of grains in biofuels,” and 2014 will still see a large increase because of the record crop production, but will level out in 2015 as production returns to normal. Moreover, Meat exports “should see modest gains this year and next, boosted by stronger pricing alongside lower cost of feed” (EDC). Processed food is still expected to see an increase do to “a more confident US consumer” demand, and this, along with the cheaper loonie, will also boost the seafood exports to the US and China (EDC).

Fertilizer exports will only see minor increase due to falling Potash prices, which is in over-supply in the market, and an expected decline in US farm income and acreage due to weakening crop prices, consequently reducing the need for fertilizer (EDC).

Forestry Products are only expected to grow stronger with the “strengthening recovery in the US housing sector and rising lumber demand from China” (EDC). Furthermore, because of the weakened Canadian dollar, “pulp and paper shipments will receive a boost” (EDC). However, BC will see a reduced volume and increased prices as demand grows for lumber, due to forestry damage caused by pine beetles and the closing of mills because of a lack of timber supply.

Automotive exports will climb only modest in light of U.S. economic recovery as the majority of automotive production for this market will be from factories in Mexico and the southern United States. Since the cost of automotive production in Canada is high, the decline of the Canadian dollar may provide some relief for the industry, but not much, and certainly not enough to “change the short-term outlook” (EDC).

Industrial Machinery and Equipment exports are “poised for a return to healthy growth rates” due to a rise in “investment demand, mainly in the US,” as the “global economy gains strength ” (EDC). The top performers are expected to be construction, agricultural, metals, and woodworking machinery and equipment, with rubber and plastic machinery and equipment seeing only moderate growth, and the EDC expects a “soft” performance by mining and oil and gas machinery and equipment (EDC).  

Advanced Technology exports are expected to grow “in several subsectors such as electrical components and measuring and testing devices, navigational and measuring instrument (representing almost 25% of total exports in the advanced technology sector), and medical and measuring instruments, all heading mostly to the US and Asia markets (EDC).

Aerospace exports are expected as global growth accelerates and demand for aircraft parts and simulators increases due to “rising air travel in emerging markets and the delivery of newer and more technologically advanced aircraft” (EDC).

Chemicals and Plastics exports will see only modest increase with demand from the U.S. (which accountable for 80% of total shipments). The packaging industry is also expected to continue benefiting from rising exports to the US as healthy consumer demand is boosting retail sales. Investing in R&D to develop environmentally friendly production methods will be a major growth opportunity for the sector (EDC).

Consumer Goods exports will also increase because of U.S. economic recovery, which again receives over 80% of the goods in this sector. Moreover, the recovering real estate market will drive this sector as over 90% of housing-related goods will be exported to the U.S.

Services exports will see strong gains in the travel segment, including business and personal travel, which will be driven by the weaker loonie, making Canada an affordable travel destination. Furthermore, Transportation services exports “will accelerate in line with rising commodity exports that have swamped Canada’s rail system, and demand is spilling over into ground transportation as trucking companies are stretched to find the resources to accommodate all the demand” (EDC). Finally, exports of Intellectual Property (IP) will continue to see very strong gains (EDC).

Canadian Merchandise Export Forecast by Sector
Export Forecast Overview	CAD bn 2013	% Share of Total Exports 2013	Export Outlook (% growth) 2013	Export Outlook (% growth) 2014	Export Outlook (% growth) 2015
Agri-Food	50.3	9.5	5.7	11	3
Energy	123.3	23.3	6.0	7	4
Forestry	29.9	5.6	12.6	12	11
Chemical and Plastics	36.9	7.0	7.2	2	6
Fertilizers	7.7	1.5	-4.9	4	2
Metals, Ores, and Other Industrial Products	61.9	11.7	0.0	6	8
Industrial Machinery and Equipment	28.1	5.3	-1.9	7	13
Aircraft and Parts	11.2	2.1	4.1	4	8
Advanced Technology	13.9	2.6	-0.4	5	3
Motor Vehicles and Parts	62.5	11.8	-0.8	3	4
Consumer Goods	8.0	1.5	11.2	3	7
Special Transactions*	3.6	0.7	10.2	8	8
Total Goods Sector	443.1	83.6	3.6	6	6
Total Service Sector	86.8	16.4	3.2	3	4
Total Exports	529.9	100.0	3.5	6	6
Memorandum
Total Volumes		100.0	1.8	2	6
Total Goods Nominal (excl Energy)	319.8	60.3	2.7	6	7
Total Goods Nominal excl. Autos and Energy)	257.3	48.6	3.6	7	7

Sources: Statistics Canada, EDC Economics, 2013 is actual data while 2014 and 2015 are forecast.

Special Transactions* mainly low-value transactions, value of repairs to equipment and goods returned to country of origin. 

Amanda Labelle

Sources:

Beltrame, Julian. “Canada missing out on $40B in exports: Poloz,” The Canadian Press. April 29^th, 2014.

“Global Export Forecast, Spring 2014: Ready for White Water?,” Export Development Canada (EDC), April

2014.

Acharya-Tom Yew, Madhavi “Ontario Export Sector Poised for Growth: Report,” The Toronto Star, April

30^th 2014. Web.  www.thestar.com/business/economy/2014/04/30/ontario_sector_poised_for_growth_report.html, accessed May 1^st, 2014.