Canadian exporters will have to cope with slower-than-expected demand as the global economic recovery sputters, according to the latest forecasts.
Weak global demand will keep exports from Canada 11 per cent below pre-recession levels this year, according to an Export Development Canada (EDC) report unveiled Tuesday.
A separate research report from Capital Economics in London forecasts trade growth easing further in coming months.
“The global economy got very quiet out there midway through this year, and it’s going to be weak for some time,” EDC chief economist Peter Hall said. “Recovery is still at least a year away, and navigating through this period will be challenging – a moment of truth for the world economy.”
Next year will see only single-digit growth increases, EDC said in its semi-annual global forecast. It also expects the Canadian dollar will remain high – throwing another headwind at exporters –albeit slightly weaker than current levels.
The pace of global growth has stalled after a six-month rebound that convinced many people that the recovery was in full swing. The current slump in demand, however, is likely to linger, the agency said. Sogginess in Canadian trade would have a direct impact on the country’s economy because exports account for 30 per cent of GDP.
For Craig McIntosh, chief executive officer of Winnipeg-based manufacturer Acrylon Plastics, there had been signs of stabilization in his company’s key market, the United States.
U.S. customers of his company (which makes plastic parts for doors and window installations, as well as farm machinery, electric cars and backyard play sets) have been slowly replenishing their inventories, he said.
Nonetheless, “the American economy has not recovered and that’s a significant export area for many Canadian companies,” said Mr. McIntosh, who isn’t sure what to make of the bleak prognosis.
EDC’s Mr. Hall said he expects the weakness will be widespread, affecting export sales in most industrial sectors. Export growth will likely slow to 6 per cent next year from 11 per cent this year.
Four factors will challenge short-term growth, he added. The first is nervous consumers, who are busy paying down debt and becoming more thrifty. The second is the winding up of stimulus programs, for which governments must now pay off the costs.
The third is the reticence among financial institutions to lend – a key ingredient to economic growth. And the fourth is slower growth in emerging markets, which have so far propelled much of the demand.
“Canada will not be able to dodge the world economy’s soft spot,” Mr. Hall said. “The sharp global rebound was good to primary producers, shoring up demand and giving prices a boost in the oil and base metals categories. Slower growth is forecast to weigh on commodity prices and dampen growth in 2011.”
The world economy will expand 4.2 per cent this year, and slow to a rate of 3.9 per cent next year, EDC believes. Developed countries will generate just 2.1-per-cent growth next year. Emerging markets, meantime, will “share in the current weakness,” but still grow 5.9 per cent in 2011.
Capital Economics international economist Sukhy Ubhi said in a research note Tuesday that the sluggishness of the global economic recovery will hamper world trade growth: “A combination of fading policy stimulus, high unemployment and balance-sheet rebuilding will prevent a forceful pickup in GDP growth in the major economies.”