Another Chorus of Pessimists

Perhaps for the first time since 2001, exporters in Canada are gloomier than ever when it comes to the international trade outlook. This is because the loonie has gained too much strength, according to many in the manufacturing sector, and Canadian manufacturers are simply reduced to playing catch-up by cost cutting and efficiency boosting, and are being forced to raise their prices to justify both.

It’s no wonder that Canada’s trade confidence index has gone into a tailspin to the lowest level since just after the September 11 terrorist attacks. According to the deputy chief of Export Development Canada (EDC), Peter Hall, “The mood has turned decidedly sour. A strong dollar was the main culprit for the outlook, with just eight percent of exporters saying the level of the dollar didn’t affect their foreign operations. Most firms plan to respond to the woes by cutting costs, but a growing number now say they plant to raise prices — a move they’d previously avoided.”

Who has been hit the most? The automobile and forestry sectors are the loudest in expressing their pessimism. Among the regions, about a quarter of firms in the Ontario and Atlantic provinces expressed the most concern about sagging international sales, which is more than double since the last poll the EDC conducted. The EDC expects a further decline of exports of 0.5% this year, which is the first decline since 2003, from an estimated increase of 2.6% reported in 2007.

Thankfully, it is not all doom and gloom in the exports sector. The EDC believes that exports to emerging economies will keep on going strong, with a few sectors even reporting significant gains, such as the agricultural and food industries. Also, some easing is expected from the main culprit that has caused all the headaches among exporters — the loonie, which is expected to ease down from parity to a more manageable level of approximately US$0.90.

This segment on exports in Canada concludes the series of articles I started last week regarding the state of Canadian economy. The bottom line is this: the U.S. recession is bound to hit us in the mid- section. We’ll feel that punch, particularly the capital markets, but the overall economy will escape the worst relatively unscathed.

A slump and slow, almost negligible growth are expected in the first quarter of 2008, but by this time next year, we should be out of the woods. In the meantime, reduced interest rates will give us enough breathing room for more consumer spending to ensue, especially in the housing sector, where some of the easing will be felt, too. And, as the loonie returns to its more feasible level of US$0.90, Canada’s export is expected to pick up as well, fattening that current account once again.

Finally, as the overall economy recuperates, it will filter down further to individual sectors, then firms, then capital markets, and eventually, to you, too, Canadian investors! Choruses of pessimists are aplenty, but that is to be expected — the first quarter will be the most difficult. As the weather warms up towards the end of June, so should our economic outlook. Another Chorus of Pessimists — A Canadian Perspective Column, by Inya Ivkovic, MA

Perhaps for the first time since 2001, exporters in Canada are gloomier than ever when it comes to the international trade outlook. This is because the loonie has gained too much strength, according to many in the manufacturing sector, and Canadian manufacturers are simply reduced to playing catch-up by cost cutting and efficiency boosting, and are being forced to raise their prices to justify both.

It’s no wonder that Canada’s trade confidence index has gone into a tailspin to the lowest level since just after the September 11 terrorist attacks. According to the deputy chief of Export Development Canada (EDC), Peter Hall, “The mood has turned decidedly sour. A strong dollar was the main culprit for the outlook, with just eight percent of exporters saying the level of the dollar didn’t affect their foreign operations. Most firms plan to respond to the woes by cutting costs, but a growing number now say they plant to raise prices — a move they’d previously avoided.”

Who has been hit the most? The automobile and forestry sectors are the loudest in expressing their pessimism. Among the regions, about a quarter of firms in the Ontario and Atlantic provinces expressed the most concern about sagging international sales, which is more than double since the last poll the EDC conducted. The EDC expects a further decline of exports of 0.5% this year, which is the first decline since 2003, from an estimated increase of 2.6% reported in 2007.

Thankfully, it is not all doom and gloom in the exports sector. The EDC believes that exports to emerging economies will keep on going strong, with a few sectors even reporting significant gains, such as the agricultural and food industries. Also, some easing is expected from the main culprit that has caused all the headaches among exporters — the loonie, which is expected to ease down from parity to a more manageable level of approximately US$0.90.

This segment on exports in Canada concludes the series of articles I started last week regarding the state of Canadian economy. The bottom line is this: the U.S. recession is bound to hit us in the mid- section. We’ll feel that punch, particularly the capital markets, but the overall economy will escape the worst relatively unscathed.

A slump and slow, almost negligible growth are expected in the first quarter of 2008, but by this time next year, we should be out of the woods. In the meantime, reduced interest rates will give us enough breathing room for more consumer spending to ensue, especially in the housing sector, where some of the easing will be felt, too. And, as the loonie returns to its more feasible level of US$0.90, Canada’s export is expected to pick up as well, fattening that current account once again.

Finally, as the overall economy recuperates, it will filter down further to individual sectors, then firms, then capital markets, and eventually, to you, too, Canadian investors! Choruses of pessimists are aplenty, but that is to be expected — the first quarter will be the most difficult. As the weather warms up towards the end of June, so should our economic outlook.