Confidence among Canadian exporters has significantly flagged as the outlook for the global economy darkens, with the index measuring trade companies’ mojo falling to the third-lowest level on record, ahead of only the 2008 global financial crisis and the onset of the COVID-19 pandemic.
Export Development Canada’s (EDC) biannual Trade Confidence Index recorded a third-consecutive drop in confidence to 63.8, from a high of 80.5 at the start of 2021, based on survey responses from 800 exporters in sectors ranging from transportation to infrastructure to light manufacturing.
“Exporters are facing persistent supply chain issues and rising inflation while having to navigate through a tough labour market,” Stuart Bergman, vice-president and chief economist at EDC, said in a press release. “With the ongoing war in Ukraine and signs pointing to a global economic slowdown, exporters are being challenged with uncertainties on multiple fronts.”
Among the top factors exporters said are dragging down their outlook is the possible onset of a global recession, with 77 per cent of respondents indicating a recession would negatively impact their businesses. A little more than half said an economic downturn would have a “significant negative impact,” with the rest saying it would have a “slightly” negative impact.
World and domestic economic conditions scored the lowest among the five metrics that comprise the confidence index, registering at similar levels to those of the financial crisis, the European debt crisis of 2009-2010 and the pandemic.
Exporters indicated that a decline in spending in the United States is also underway. After recovering from the pandemic in 2021, 21 per cent of exporters said orders from the U.S. had begun to fall, an increase from this year’s earlier survey.
The Bank of Canada, in its most recent Monetary Policy Report (MPR), forecast that gross domestic product for 2023 will tread water at 0.9 per cent, down from the 1.8 per cent it forecast in July’s MPR. The International Monetary Fund (IMF) has predicted equally scant growth for the U.S., Canada’s largest trading partner, of one per cent for 2023. Globally, though, the IMF is forecasting growth of 3.2 per cent for this year and 2.7 per cent for 2023.
Exporters are also having trouble navigating rising interest rates, with 43 per cent indicating they are experiencing significant negative impacts due to higher rates, and almost one-third reporting slightly negative impacts.
“As central banks tighten monetary policies, 48 per cent of businesses now expect worsening financing conditions, an increase of seven percentage points from mid-2022,” EDC said.
The Bank of Canada’s latest interest rate hike won’t help matters in the short term.
The bank on Wednesday increased rates another 50 basis points to 4.25 per cent. However, relief might be on the way if the Bank of Canada is done hiking. It indicated further increases are no longer baked into future decisions, but will be based on the data.
Exporters seem to be taking a page from the federal government’s strategy to expand Canada’s roster of trading partners, a plan laid out when Ottawa recently announced details of its Indo-Pacific Strategy.
The EDC survey found there is increased interest in Asian trading partners such as Japan and Korea. But the U.S. is still the top export destination followed by the United Kingdom, Mexico, Australia and Germany.