A cluster of Canadian sectors is likely to do very well this year, including autos, consumer goods, aerospace and machinery-and-equipment, according to a twice-yearly forecast by EDC, the federal government’s export lender.Getty Images/iStockphoto
Canada's predicted export turnaround has been delayed – again.
Export Development Canada has slashed its forecast of goods exports this year to 2 per cent, down from a previous estimate of 7 per cent.
A cluster of Canadian sectors is likely to do very well this year, including autos, consumer goods, aerospace and machinery-and-equipment, according to a twice-yearly forecast by EDC, the federal government's export lender.
But that strength is being offset by a commodities price collapse that is proving to be unexpectedly deep and prolonged, EDC chief economist Peter Hall said.
"What's surprising is the extent of the volatility, the extent of the commodities price plunge, and the reactions in the marketplace to the [U.S. Federal Reserve Board] finally moving to raise rates," Mr. Hall pointed out.
He insisted that the export recovery is coming, but it's been delayed. EDC is calling for 6-per-cent export growth in 2017.
"Perhaps more slowly than in the past, but growth is catching on," he said. "Now is pretty close to the time our leading indicators would tell us growth is about to kick in."
The EDC's weaker export outlook is in line with that of Bank of Canada Governor Stephen Poloz, who is also cautious about the year ahead. Mr. Poloz has been warning that a long list of obstacles could derail Canada's economic prospects, including a downturn in the global economy, weak business investment and a recent rebound in the Canadian dollar.
Canada's economy continues to show evidence of a split personality.
On the up side, Mr. Hall pointed to strong expected gains this year in exports of autos (up 10 per cent), forestry (up 5 per cent), aerospace (up 13 per cent) and consumer goods (up 14 per cent). All of these sectors are getting a lift from the lower value of the Canadian dollar.
"The weaker Canadian dollar is starting to show in the growth in Canadian exports, particularly the high value-added ones," Mr. Hall said.
But that performance is muted by what's happening in the depressed energy sector, where exports are expected to tumble 14 per cent this year. The EDC's forecast is based on an average price of crude (West Texas intermediate) of $40 (U.S.) this year, $45 in 2017 and $54 in 2018. Exports of fertilizers are also weak, now forecast to fall by 5 per cent this year.
The export sector is vitally important to Canada's fortunes because the domestic economy is showing signs of stress, including an overbuilt housing market and tapped out consumers.
"The domestic economy is fundamentally weak in Canada," Mr. Hall said. "It's going to need the export sector – every bit of growth to keep things going."
Among the other highlights of the EDC forecast:
- GDP growth (Canada): 1.4 per cent this year and 2.3 per cent in 2017.
- GDP growth (U.S.): 2 per cent this year and 2.7 per cent in 2017.
- GDP growth (global): 3.1 per cent this year and 3.5 per cent in 2017.
- Canadian dollar: 75 cent (U.S.) this year and 77 cents in 2017.
- Exports to the United States: Up 1 per cent this year and 7 per cent in 2017.
- Exports to Europe: Up 3 per cent this year and 5 per cent in 2017
- Exports to Asia: Up 2 per cent this year and 3 per cent in 2017.