Canada's exporters are pushing deeper into diverse markets as global trade rebounds from the collapse of the crisis, positioning them to bolster the recovery at a crucial time.
After acting as a drag through much of the downturn, Canadian exports are now being buoyed by the global recovery, as a report from Statistics Canada on Tuesday signalled that international trade will add to growth for a second straight quarter.
Companies are relying less on their traditional U.S. markets, boosting shipments to countries such as Germany, Mexico, Britain, Turkey, Ghana, Hong Kong, Australia and Brazil, and finding stronger demand for their goods.
Trade has lingered as the biggest question mark hanging over Canada's export-dependent economy, and exporters' ability to expand their reach beyond the slowly healing U.S. market is widely viewed as a key to longer-term economic health. Growth in exports will be particularly crucial if rising interest rates cut into domestic spending.
Canada's global trade surplus in February swelled to its highest level since late 2008, when customers in rich and developing nations stopped buying the country's oil, automobiles, metal ores and fertilizers. The drop in exports helped pull the country into recession.
February marked the fifth straight monthly surplus, which eclipsed analysts' expectations by widening to $1.4-billion from $754-million in January.
The increase in exports outpaced import gains by three-to-one, even as the currency traded around 95 cents (U.S.), making Canadian goods more expensive.
Canada's exports are rebounding amid a worldwide recovery in global commerce. In the U.S., the gap between imports and exports widened in February, as consumers bought Canadian cars and other foreign-made goods such as computers and televisions, further signalling that confidence is healing in the world's most important economy.
"External trade is no longer the 'missing link' to a full-fledged recovery," Marc Pinsonneault, senior economist at National Bank Financial in Montreal, said in an interview. "Increased demand outside Canada will have a larger impact than what we've seen from the currency."
The trade numbers suggest that the economy's expansion from January to March could surpass the rosiest projections, and comes as the domestic spending that's powering the recovery may be about to cool off as the central bank prepares to lift interest rates from rock-bottom levels.
Exports to the U.S., Canada's largest trading partner, rose 2 per cent to $4.4-billion on demand for autos.
But companies are reducing their dependence on the damaged U.S. market. Exports to countries other than the U.S. rose 5.2 per cent, as sales to all principal trading areas except Japan increased. Shipments to places as diverse as Germany and Mexico, the U.K., Turkey, Ghana, Hong Kong, Australia and Brazil were all up from year-earlier levels.
The Canadian trade report comes a week before Bank of Canada Governor Mark Carney's next interest rate decision, followed by a much-anticipated quarterly forecast two days later, and caused some economists to revise their first-quarter growth forecasts.
Economists said the report also shows Canadian businesses are coping with a dollar that's been at 95 cents or higher since October and weaker-than-normal demand from the United States.
But the February numbers could still prove fleeting. The currency's march to parity with the U.S. dollar picked up steam in March and April. Export Development Canada estimates that it can take as long as 18 months for most of the effects of currency swings to be fully realized.
Also, the February surplus included big jumps in shipments of cars and trucks, a phenomenon economists said might not be sustainable because demand in the U.S. for expensive items could be tepid at best once the effect of government stimulus spending fades.
And demand for crude is continuing to play a big role in the trade surplus. Although the numbers show higher demand for a broad range of goods, Bank of Montreal deputy chief economist Doug Porter noted the surplus for energy products rose to $5.8-billion in February. The non-energy trade balance is mired in a deficit of more than $4-billion. In 2004, both numbers were in surplus.
Mr. Carney has warned repeatedly that the strength of the currency and weak U.S. demand would act as "drags" on exports this year. He and federal Finance Minister Jim Flaherty have urged exporters to find ways to adapt.
However, after suggesting last month that executives aren't taking advantage of tax cuts, low borrowing rates and stable inflation to invest, Mr. Carney said in a quarterly business survey this week that companies' investment plans are "increasingly being targeted at expansion and improving efficiency to promote future growth."
Last month, the Ottawa-based Conference Board of Canada released a report indicating factories are also creating natural hedges against the currency's value by setting up plants in other countries and sourcing more products abroad.
February's trade data provided more evidence that manufacturers, who export half of what they produce, are using the currency's effect on import prices to buy new equipment that will help them become more efficient.
Imports rose to $32.6-billion as volumes increased, mostly for machinery and equipment.
At the same time, the increase in exports, while encouraging for the Bank of Canada and for industry, is only so impressive. Sales abroad took such a sharp hit last year, so they're still 13 per cent below their May, 2008, peak, said Grant Bishop, economist at Toronto-Dominion Bank.