(Stephen Poloz, EDC Economics)
Canada's
exporters are more confident about the future, according to EDC's latest survey of 1,000 companies. The Trade Confidence Index (TCI) is up by three percentage points from six months ago, from 70.6 to 73.6.
Virtually all sectors and provinces are participating in the upturn.
The main driver pushing confidence higher is a sharp turnaround in sentiment on the global economy. Companies believe that global
economic conditions will get better, trade opportunities will increase and foreign sales will grow. In contrast, perceptions are that the domestic economy has reached full strength and is unlikely to get any
stronger.
The rebound in confidence is welcome news, because six months ago the survey pointed to a significant retrenchment in exporter sentiment. Although exports were in full expansion at the time
of the survey in the fall of 2004, the unexpected rise of the Canadian dollar at that time, into the mid-80s against the U.S. dollar, looked likely to throw export sales off track. Moreover, fully 50 per
cent of those surveyed six months ago expected the dollar to appreciate even further.
Although the dollar has dropped from its recent peaks, it has persisted in the 79-81 cent range in the past few
months, and it remains a major preoccupation for exporting companies. Some 56 per cent of companies surveyed say that the dollar influences export growth a great deal, and a further 33 per cent say it
influences their sales somewhat. According to the survey, nearly one-third of companies are simply riding out the currency storm, but another 20 per cent are looking for more ways to cut costs. Only 15 per
cent of companies expect to be able to increase their export prices. Importantly, only 21 per cent of companies now expect the dollar to appreciate from its recent levels.
The fact of the matter is
that companies have weathered the exchange rate upswing very well. Exports rose by 9 per cent during 2004, and are forecast to increase by a further 4 per cent in 2005, despite currency strength. The simple
reason is that there is more global demand for Canadian exports. By raising output during 2004, companies were able to absorb most of their excess capacity, and this led to higher productivity and better
profit margins in many sectors of the economy.
In 2005, the story will be slightly different -- companies that are operating near their capacity limits will invest in new capacity and add more
workers, and productivity will rise simply because the new capacity will incorporate the latest equipment. Imports of new machinery and equipment are running some 15 per cent higher than in 2004, and
investment intentions are at a record level. Meanwhile, EDC's survey shows a significant increase in hiring intentions by exporting companies. Only 4 per cent of companies plan to reduce staff and 58 per
cent plan to hold staffing steady. Some 38 per cent are planning to add workers to their payrolls, the highest reading since 2002.
An Export Development Canada survey released Wednesday said 79 per
cent of exporters believe the value of the dollar will stabilize and potentially decrease over the next six months.
The bottom line? Exporter confidence has rebounded into solid territory, although it
is still below its previous peak set back in 2002. This is further evidence that Canada's economy will be running on all cylinders through 2005, including exports. |
