US growth fueling strong exports

OTTAWA: The economy is getting a big boost from exports this year despite carrying the burden of a strong Canadian dollar, according to Export Development Canada (EDC).

Exports will be a major contributor to the economy in 2012 and 2013, representing as much as one half of growth, making up for a soft domestic demand.

The EDC anticipates the value of shipments will rise 7.1 per cent this year, following a 10.8 percent burst in 2011, and will grow 7.3 per cent in 2013.

The new forecast is somewhat at odds with Bank of Canada governor Mark Carney, who has lamented exporters’ near-sighted dependence on safe markets like the US and believes net trade will be a minimal contribution to growth.

”Our outlook on exports is stronger, but our outlook on imports is definitely dimmer than the Bank of Canada’s,” said Peter Hall, EDC’s chief economist.

The softer expectation on imports, an indication of a slowdown in consumer spending, mostly accounts for EDC’s more modest forecast on overall economic growth at two per cent this year, as opposed to the central bank’s 2.4 per cent.

However, the agency also has a stronger profile for exports, partly based on recovery in the US.

”There are a number of reasons we’re bullish on exports. US growth is very strong at the moment and we believe Canadians will be capitalizing on that, and in emerging markets we’ve been growing like gang-busters. Their thirst for commodities is driving that, but we’re also doing substantial high value added trade,” Hall said.

Canada has been doing reasonably well in shipments to Europe despite the mild recession there, he added.

Given the strong showing from exports at the end of 2011, Hall believes there`s considerable potential for exports to be even stronger this year than his baseline forecast.

Earlier this week, the Bank of Canada projected net trade would add about 0.2 percentage points to growth, and half that in both 2013 and 2014. Although the review had a strong contribution from exports, it was almost all subtracted by growth in imports.

Carney recently said Canadian firms aren`t taking sufficient advantage of fast-growing emerging markets such as China, and are too dependent on slow-moving established markets like the US and Europe.

Hall believes the bank governor is too pessimistic. He notes Canadian trade to emerging markets is quickening and becoming a much larger part of overall trade.

”I don’t completely disagree with him … but the transformation is under way,” Hall explained.

”Back in 2000, emerging market trade as a share of total merchandise exports was only four per cent. Now it’s 11. And if (the trend continues), by the time we get to 2020, it’s going to be just under a quarter and by 2025, it’s going to be close to a third.”

Canadian government trade policy has also focused on emerging markets, with Ottawa signalling interest in expanding trade talks with China, India and Brazil, as well as joining the Trans-Pacific Partnership pact.

Related: Michael Hlinka’s take on the loonie and other manufacturing woes (From Purchasingb2b’s print edition).