Bank of Canada Governor Stephen S. Poloz speaks the media. Glenn Lowson photo for The Globe and Mail. -- ROBThe Globe and Mail
At first glance, Canada's latest trade statistics seem like the good news the country has been waiting to hear for years. Exports hit a record high in June, raising hopes that the Canadian economy may finally be poised to record strong growth, as trading partners abroad recover at last from a lingering economic downturn.
But the data show a worrying trend for Canada's struggling automotive industry. While exports grew in many categories – including metals, consumer goods and energy – the market for Canada's cars weakened. Exports of motor vehicles and parts fell 6.3 per cent in June, after posting gains in the four previous months. Automotive exports are up from June last year, but remain below the levels they hit 10 years ago, when the sector was booming. Forestry products also saw a decline in June, with exports shrinking by six per cent over May.
The two weakest sectors in June were singled out for concern by Bank of Canada Governor Stephen Poloz at a press conference in July. He said that Canada's automotive sector continues to struggle because it is losing market share to Mexico, while wood products and pulp and paper are also "languishing." Mr. Poloz said the Bank of Canada is forecasting those critical sectors "will benefit from a generalized lifting of all boats" as the economy improves, but he added that there is a risk they may not be able to gain back the lost ground.
It has been hard to predict the long-term outlook facing the automotive sector amid the distortion of a U.S. recession and slow global growth, but the latest numbers are another troubling sign of Canada's dual-personality recovery, with energy continuing to boom while the fate of Ontario's manufacturing heartland remains uncertain. If the slump proves to be more than just cyclical, the challenges are far greater for policy-makers and company executives, who must figure out how to re-create their industries or risk being permanently left behind.
Ideally, the automotive sector would settle into a stable mode, but even holding ground requires investment and productivity enhancement to compete with cheaper regions. The trends will become clearer in coming months, and a broad recovery may continue, but the numbers do not yet support the Bank of Canada's hopeful forecast that surging growth will lift all boats.