Outlook darkens for Canadian exports

Globe and Mail,  July 24, 2008 by DAKSHANA BASCARAMURTY

A brief lift in Canadian exports that’s forecast for the rest of the year is just an energy price-fuelled mirage and will be followed by a decline in 2009, predicts Export Development Canada.

The strong energy sector is expected to boost export earnings by 4.2 per cent throughout the rest of the year, but this brief deviation will likely be followed by a 1 per cent slump next year.

“I’m not one who wants to paint a rosy picture at all,” said Peter Hall, vice-president and chief economist of EDC. “It’s still very dark times for Canadian exporters.”

The EDC predicts the consumer goods, automotive, forestry and advanced technology sectors will be hit particularly hard in the second half of 2008 by rising commodity prices, the spread of U.S. economic woes, and a strong Canadian dollar.

The EDC forecasts a dreary decline of 18 per cent for consumer goods throughout 2008 and a further slump of 4 per cent in 2009, based largely on the continued fallout from the U.S. subprime crisis.

“Clearly, there will be fewer homes to furnish in the U.S. for some time and demand for these products will be soft over the forecast,” the EDC report said.

Energy prices, boosted by exports of natural gas, are expected to skyrocket by almost 40 per cent before tumbling 7 per cent next year when price corrections are expected to set in, the EDC predicts.

“If there is a speculative premium, we expect it to melt away pretty quickly,” Mr. Hall said. He added he still expects prices to remain high enough to justify continuing oil sands and offshore oil projects.

In its bleak summer forecast, EDC sees a glimmer of hope in the agrifood sector.

Global demand for grain may have been met with panic by consumers, but was welcomed by exporters of food, which EDC expects will do well for the rest of the year.

Mr. Hall credited the rise of the middle class in emerging markets, especially China and India, for stimulating the health of this sector.

“As those consumers get richer, one of the first things they do is buy and consume food,” he said. “It’s the reason why food commodity prices are not in for the same correction [as other sectors].”

EDC forecasts that agrifood exporters will also cash in on the surge of biofuel development through oilseed sales, which it expects will rise 38 per cent in 2009.

Echoing its spring forecast, EDC predicts developing markets such as China, India, Brazil and Russia will provide Canadian exporters with healthier business than floundering developed markets such as the U.S., the European Union and Japan. But the EDC warns Canadian exporters to cash in on the robust developing markets while they can, as the economic turmoil developed markets have been wading through for months is expected to spread across the globe by 2009.

“If you see demand shrinking in 60 per cent of the world, you would expect to see a fairly rapid transporting of that into emerging markets that are feeding the machine,” said Mr. Hall, who forecasts China in particular may experience “Olympic hangover.”

The outlook for the Canadian dollar may spell a bit of relief for some Canadian exporters.

The EDC predicts the loonie will hover close to the U.S. dollar, but then drop to between 94 cents (U.S.) to 97 cents in the first half of 2009 with the expectation of energy price corrections. Mr. Hall said 86 per cent of surveyed exporters believe the value of the loonie will hold steady or decline through the end of 2008.

“The top strategy that we could identify in terms of them dealing with it was to hang in there and absorb the loss,” he said.