If there's any consolation in the frustrating lack of sustained momentum in Canadian exports (and for an export-focused economy there's not much), it's that we're not alone. Much of the rest of the industrialized world is in the same rudderless boat.
To say Canada's trade in recent months has been a disappointment would be an understatement. The sector was supposed to be leading the country's economy to better times; instead, it posted its two biggest deficits in history in March and April, a combined $6.9-billion trade crater. Exports have fallen in six of the past seven months.
It's tempting to blame this export slump on the oil shock. Energy products made up roughly one-quarter of Canada's exports, by value, before oil prices started plummeting last year. In April (the latest month available for trade data), the value of energy exports were 40 per cent below their 2014 peak, representing a decline of nearly $5-billion.
But this is about more than a deep price slump in a single export sector to which Canada is heavily exposed.
Non-energy exports have fallen in three of the past four months. And while average monthly energy export volumes this year are actually up from last year, non-energy export volumes are down nearly 2 per cent. No, this is not just a Canada/oil problem. There's something not right with trade worldwide.
A recent report from National Bank of Canada economist Krishen Rangasamy noted that global trade volumes sank by an annualized rate of 6 per cent in the first quarter of 2015 – the worst quarter since the Great Recession.
Certainly the West Coast port strikes and unusually harsh winter in the United States contributed to the first-quarter funk. But the fact is, this was the culmination of years of sluggish trade flows that have held back the global recovery. With the exception of a bounceback from the recession lows in the early stages of the recovery, global trade growth has been considerably below its historical norms throughout most of the postrecession period.
In a research report last week, Royal Bank of Canada said that one of the keys to the prolonged global trade doldrums has been the lacklustre pace of business capital investment across a broad swath of advanced economies.
"Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since," the International Monetary Fund said in its recent World Economic Outlook. It said that for the advanced countries, this investment – in fixed assets such as machinery, equipment and facilities – is a massive 25 per cent below where it was on track to be before the 2008 financial crisis hit. Weak economic growth, uncertainty and reduced financing availability in the postcrisis era have conspired to discourage business spending.
This investment deficit is evident when you look at the Canadian export sectors that have had the poorest recovery from the financial crisis and Great Recession. The RBC report analyzed Canada's export volume growth since the depth of the crisis in the first quarter of 2009, and found that growth has been weakest in sectors closely associated with business investment: electronic/electrical equipment and industrial machinery.
The slide of the Canadian dollar against its U.S. counterpart would appear to have helped these business-oriented exports pick up somewhat as the recovery progressed. But CIBC World Markets deputy chief economist Benjamin Tal believes that the exchange rate is now acting as a double-edged sword.
In a research note last week, Mr. Tal noted that Canada's export focus to its biggest market, the United States, has become increasingly focused over the years in feeding U.S. businesses the construction materials, equipment and raw materials, and intermediate goods they need to manufacture things for world markets. But those manufacturers, who right now should be gobbling up these Canadian exports as they look to ramp up their output and capacity as the U.S. economy picks up speed, are being held back in a serious way by the rise of the U.S. dollar against other world currencies. The greenback's rise is hurting global demand for U.S.-made consumer goods, and that, in turn, is slowing demand for what Canada delivers to those U.S. manufacturers.
"So, the currency-induced reduction in demand from U.S. manufacturing works to offset the currency-induced improvement in Canadian manufacturing competitiveness," Mr. Tal said.
A return to more robust U.S. growth in the second half of this year, after a disturbingly slow start, may help this problem solve itself in the near term; U.S. domestic demand is capable of being big enough and strong enough to overcome currency headwinds for U.S. exports. But without a globally more stable and healthy economy, it may prove hard to truly break free of the bigger investment-starved trade cycle.
And it certainly won't help to have a new crisis every minute from Greece and the European Union. That not only drives more flight-to-safety buying of U.S. dollars and exacerbates its rise, but it rekindles the kind of deep uncertainty that has been making businesses so hesitant to invest for so long.