Domestic economy buoys exporter confidence: EDC Trade Confidence Index

OTTAWA, June 17 /CNW Telbec/ - Confidence among Canadian exporters continues to rise, building on the dramatic gains seen in 2009, according to a survey report released today by Export Development Canada's (EDC).

But Hall warned the optimism could be misleading.

"The increase in confidence is good to see, but it masks a growing unease with international conditions. The only reason Canadian exporters are feeling better is because they have a solid domestic market to fall back on," said Peter Hall, Chief Economist, EDC. "Confidence in international conditions and opportunities actually fell during the spring".

EDC's Trade Confidence Index (TCI), a semi-annual survey, examines the attitudes of Canadian exporters as they forecast the business environment over the next six months through five index elements: trade opportunities, export sales, domestic sales, and both domestic and global economic conditions.

The overall TCI moved to 78.8 in the spring of 2010 from 77.4 in the fall of 2009.

Exporter attitudes towards domestic sales and domestic economic conditions were the key growth elements in the TCI. Over 50 per cent of exporters believed that domestic sales would increase over the next six months, an increase of 5 per cent compared to the fall. More than, 52 per cent, of Canadian exporters believed that Canada's domestic economy would improve in the same time period, an 8 per cent jump from the fall.

Canadian exporters are cautious about international business opportunities. Only 40 per cent of exporters believed that opportunities would improve over the next six months, down marginally from the previous survey. A smaller but growing share expects conditions to worsen in the coming six months. The high level of the Canadian dollar and the weak U.S. domestic economy are weighing on overall sentiment.

"Interestingly, 25 per cent of exporters are telling us that expansion into new markets is an important reason for optimism, outpacing their proportion of overall trade," Mr. Hall said. "If this trend continues and extends into practical market diversification, overall trade growth will rise to a higher plane."

When asked about export sales over the next six months, 50 per cent of exporters believed that their exports would increase, many mentioning that emerging markets offered growth potential. However, the high Canadian dollar, the continued economic challenges and greater foreign competition were identified as threats to their outlook. Exporters who believed that exports would decrease remained unchanged at 10 per cent.

"Exporters seem more resigned to a high Canadian dollar. Over 80 per cent of survey respondents appear to be planning for a parity currency, perhaps more," Mr. Hall said. "The number one coping strategy is just to ride it out. But a growing number of exporters are responding by outsourcing, cutting costs, and changing production systems."

More than 75 per cent of exporters rated the value of the Canadian dollar as very important to their business and their ability to compete in foreign markets. Almost 50 per cent of Canadian exporters believe the Canadian dollar will stay near parity with the US dollar over the next six months, with 34 per cent believing it will increase and 15 per cent believing it will decrease.

The actions taken by Canadian exporting companies in response to the strong Canadian dollar were largely unchanged, except for notable movements in companies increasing sourcing from foreign suppliers - 8 per cent increase- and cutting costs, a 6 per cent increase.

"We believe these two increases are related. Canadian companies are lowering their costs by increasing their foreign sourcing, which is a good sign for diversification and productivity," Mr. Hall said. "This could also point to increased participation in global supply chains by Canadian companies."

By market sector, the extractive, transportation and resources sector were the drivers of the increase in TCI scores, with increases of 7.4 per cent, 4.7 per cent and 3.5 per cent, respectively.

"For the moment, sharply lower prices for oil and base metals have not rattled the extractive sector," Mr. Hall said. "We anticipate that prices will continue to drift lower through the remainder of the year. Exporters in the sector could react negatively to that development."

Regionally, Canada's western provinces and Quebec had the highest level of confidence.

Opinion Search Inc. conducted the survey in late April and May of 2010. A total of 1000 Canadian businesses participated, and the TCI was calculated on a total of 823 respondents. The survey results are considered accurate to +/- 3.1 per cent, 19 times out of 20.

For more information about EDC and the Trade Confidence Index, visit www.edc.ca/english/docs/ereports/tradeconfidence/country_information_index_e.htm.

EDC is Canada's export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC's knowledge and partnerships are used by more than 8,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining, a recognized leader in financial reporting and economic analysis, and has been recognized as one of Canada's Top 100 Employers for nine consecutive years.

For further information: Media contacts: Phil Taylor, Export Development Canada, Tel: [phone], Blackberry: [email protected]