Canadians could gain from a growing U.S. economy

Canadian businesses can expect a 7% increase in the value of their exports in 2016 following a 1% decline this year, says a global export forecast released by Export Development Canada (EDC).

This year’s drop is mostly caused by sharply lower oil prices, and most of next year’s increase will be driven by strong growth in the United States, which is Canada’s largest export customer, and also by improving prospects in Europe and continuing growth in China, says the report.

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“The U.S. economy is being led by increased consumer spending and a rising housing market that can sustain higher growth for at least the next two years,” says Peter Hall, chief economist at EDC. “On top of this, U.S. companies now have very tight capacity constraints, which is really good news for Canadian businesses, many of which enjoy a significant price advantage when selling to the U.S. due to the lower Canadian dollar.”

EDC forecasts global growth will be 3% this year and 3.6% in 2016, but acknowledges this growth is accompanied by considerable volatility in such areas as equity and currency markets, as well as in commodity prices, where the price of oil is expected to remain below US$60 a barrel through 2016.

“Even with this volatility, many non-energy sectors in Canada are already seeing significant growth in the value of their exports this year, with continued growth expected in 2016,” says Hall. “That shows why it’s important to not be frightened by volatility and to separate good risk from bad risk, so Canadian businesses can benefit from the exporting opportunities that exist.”

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“Smart companies should consider moves into new markets now while competitors are still sitting on the fence, particularly in the U.S., and ahead of the new competition that will be coming in a few years’ time from free-trade agreements with the European Union and Pacific Rim countries,” adds Hall.

The fertilizers, aerospace, consumer goods, automotive, advanced technology, and industrial machinery and equipment sectors are all seeing double-digit increases in exports, while chemicals and plastics, forestry products, and metals and ores are growing by between 4% and 8%.

Only the energy sector, which makes up about 24% of Canada’s exports, is declining this year. That is forecast to change in 2016, however, with the value of energy exports predicted to rise by 17% due to a mix of increased demand and slightly higher prices. All other sectors are expected to see increases as well.

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Lower prices for energy mean that provinces that rely heavily on the sector, such as Alberta and Newfoundland and Labrador, have seen a significant drop in the value of their exports this year. Provinces with more diversified economies, such as Ontario and Quebec, are enjoying export growth of 10% or more. EDC forecasts that all provinces will have increased exports in 2016, led by Alberta at 15% and Newfoundland and Labrador at 11% as energy exports improve.

“Canada is in a unique position among global exporters as it will soon be the only major economy with preferential access across both the Atlantic and Pacific Oceans, thanks to the Comprehensive Economic and Trade Agreement with the European Union and the Trans-Pacific Partnership,” says Hall. “This will make Canada the gateway economy for North America, and Canadian businesses should start preparing now for the opportunities this will create.”

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Hall also urges Canadian businesses to continue to look to increase exports to China, whose economy is forecast to grow by nearly 7% in both 2015 and 2016. While this is slower than the rapid growth China experienced from 2000 through 2014, it still represents a huge opportunity for Canadian exporters.

“Emerging markets, including China, account for more than 10% of Canadian exports, and more than 20% in provinces such as British Columbia, Saskatchewan and Manitoba,” says Hall.