Canadian exporters in a sour mood as outlook drops to 7-year low: EDC

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Global trade headwinds are deflating Canadian exporters’ optimism, with their confidence hitting a seven-year low, according to the latest reading of Export Development Canada’s trade index.

All five components of EDC’s Trade Confidence Index were down, continuing the decline seen in the 2018 year-end survey. The drop of 5.3 per cent brings the trade confidence index down to 69.8 points, almost four points below the series’ historical average.

“The slide was broad-based, led by a weaker outlook for international business opportunities, but also reflects softer expectations for the Canadian and global economies,” EDC said in a release Thursday.

The sour mood is slightly at odds with the better-than-expected trade data, which saw Canada’s trade deficit in April shrink to $966 million, according to Statistics Canada.

April’s trade deficit was the smallest in six months. Exports rose by 1.3 per cent as shipments of metal and non-metallic mineral products jumped by 15 per cent on higher sales of gold to Britain and Hong Kong.

Canada sent 74.5 per cent of all its goods exports to the United States in April, and that dependence worries traders who are concerned about the U.S. administration’s protectionist trade policies. The new North American Free Trade Agreement, first agreed upon by Canada, Mexico and the United States in November, has yet to be ratified by the three continental partners.

“When we did the survey there were still steel and aluminum tariffs in place and that was seen as one of the big restraints on the deal so the good news since is that these have been removed,” Stephen Tapp, the deputy chief economist at EDC told the Financial Post.

At the time, 37 per cent cited the tariffs as having a negative impact on their business. Broadly, just over a third of exporters say that protectionism is affecting their global strategies, while 45 per cent expect trade protectionism to increase by next year; as many as 47 per cent think that the level of protectionism will stay the same.

The U.S. and China trade dispute was also a drag on traders’ outlook, with 31 per cent of respondents citing it as a reason for their pessimism.

“I think we’re kind of seeing this new normal period where as long as Trump is president in the U.S. there’s a threat of tariffs,” said Tapp.

I think we’re kind of seeing this new normal period where as long as Trump is president in the U.S. there’s a threat of tariffs

Stephen Tapp, the deputy chief economist at EDC

While 34 per cent of respondents expect a recession by 2020, Tapp disagrees with that assessment.

“We certainly don’t think that market fundamentals right now are consistent with a recession happening,” said Tapp. “If there were to be a recession it would most likely come from a self-inflicted trade policy action which is reducing confidence for businesses.”

Tapp cited trouble with energy prices as the cause for the 4.3 per cent drop in confidence in Western Canada, while Ontario’s 4 per cent drop comes from its heavy reliance on the U.S. economy. The only region to fare well was Atlantic Canada with a 0.4 per cent increase to 74.7 points, thanks to the Comprehensive Economic and Trade Agreement (CETA), which has raised the prospects of more trade across the Atlantic.

“Canada has a trade deal with the EU, in place since September 2017. Atlantic Canada is well positioned to take advantage of increasing export sales or increasing import sales from the EU,” said Tapp.

A slim majority, 55 per cent, expect the new NAFTA to pass in 2019 or 2020. However, a significant faction, 19 per cent, does not expect passage. While 48 per cent of exporters have a neutral view of the trade deal, the negative perceptions outweigh the positive at 34 per cent to 18 per cent, respectively.

“The U.S. congressional system has been a big wild card in terms of passage of the deal but there does seem to be some positive signs now that it could pass,” said Tapp.

The EDC conducted this study from March 19 to April 15 of this year, surveying over the phone 1,001 Canadian exporters nationwide.

• Email: noskic@postmedia.com

Source: Financial Post

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