ECONOMY

Canada’s exporters eye trade boost in recovery, but COVID-19 spillovers pose threats, report warns

Trade Confidence Index sees biggest surge in its history

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Canada’s exporters are eager to capitalize on the quicker-than-expected economic recovery, as growing vaccination rates signal an end to the pandemic.

Economic Development Canada’s biannual Trade Confidence Index has surged 19 per cent from the start of the year, the biggest increase in the survey’s history, the federal agency reported on June 24.

The index came in at 80.5, the highest in two decades and a 44-per-cent rebound from a year ago, when the economy was only beginning its climb from the pits of the COVID-19 recession.

“It’s abundantly clear that the economy is recovering (and) what this says is that trade is going to be a big part of that,” Peter Hall, EDC’s chief economist, said in an interview. Trade “is going to be a really big factor inside the resurgence of growth in the second half of the year.”

Surprisingly strong rebounds in the United States and China — the world’s biggest and second-biggest economies, respectively — are powering a revival in global trade. The Bank of Canada predicted in April that the global economy will grow 6.8 per cent this year, compared with an earlier estimate of 5.6 per cent.

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Canadian exporters in all sectors expressed higher levels of confidence, led by the information and communication technology and transportation industries. Miners and oil and gas companies were the least optimistic, reflecting weaker investment intentions as economies move forward more aggressively with plans to decarbonize, the EDC report said.

Much of the enthusiasm is being driven by the United States, the destination for about 70 per cent of Canada’s exports. More than two-fifths of respondents said their orders from the U.S. had increased, and the number of companies that said they plan to start exporting there grew.

While that’s a positive in the immediate term, Hall said it could distract companies from better opportunities elsewhere, especially in Asia. Over the longer term, the U.S. and other traditional trading partners “are condemned to lower growth,” Hall said.

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“You talk to companies in Canada that are doing that business at the moment and some of them are saying ‘for three years running, I had 100-per-cent growth in my China sales,” he said.

“For Canada to cement economic growth at a higher level in the future, we are going to have to get our minds around this because we are not going to generate it inside our economy and we are absolutely not going to generate it with our traditional customers.”

On the flip side, the survey showed there is increased interest in exporting to Mexico and South Africa, which is interested in Canada’s precious and rare metals, said Hall.

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Despite the optimism, there are challenges that put a damper on the traders’ outlook.

The rise of the Canadian dollar, from a low of 70 U.S. cents at the beginning of the pandemic to its recent rise above 80 cents, “has awakened from a long-dormant issue to rank near the top of the list of exporters’ concerns,” the report stated.

There also is evidence that Canadian exporters have been bruised by geopolitical issues. More than a third of respondents said that they are impacted by “protectionism“ and 41 per cent said they are impacted by Canada-China trade tensions. “Fortunately, our survey suggests protectionism worries have started to wane under the new Biden administration,” the report said.

COVID-19 also is a headwind, even though an end is in sight. Among all respondents, the most concerning challenge is the ability to meet with customers in-person, as emerging economies are not at the same level of vaccination as advanced economies.

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In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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