As the sun sets on a year of dramatic swings and unexpected turns, it’s time to turn our minds to 2016 and what’s in store for Canadian businesses and exporters.
First, expect further depreciation of non-U.S. currencies in the wake of the U.S. Federal Reserve rate hike in December.
“The levels we’re seeing at the moment do not line up with supply and demand conditions in a world where growth is actually picking up,” said Peter Hall, chief economist for Export Development Canada.
That growth, he said, will keep commodity prices from going further down. And it will keep the Canadian currency low.
Jayson Myers, CEO of the Canadian Manufacturers & Exporters, said he expects the Canadian dollar to remain low, at between 70 and 75 cents on the U.S. dollar.
Hall agrees: “It’s also what’s going to keep currency in turbulence — the depreciations we’re seeing, particularly in markets like Canada’s, that are commodity dependent. It’s a bit counter-intuitive, but we believe markets have overdone it in anticipation of this move and that they will correct.”
The commodities rebound will be late to come, however, and may wait till 2017, according to Todd Winterhalt, Vice-President of International Business Development at EDC.
“We see continued growth out of the U.S. and while there may be a little fluctuation with respect to election season, all the leading indicators are strong,” Winterhalt said.
The U.S. election will play a role in 2016, if only to focus America’s attention domestically. Canada’s softwood lumber agreement is expiring, and it will be hard to focus attentions on it.
“Those who are in the forestry sector are looking at this with a bit of trepidation,” Hall said.
While Canadian exporters are likely to still see the U.S. market as the most attractive, Winterhalt hopes 2016 will also push them toward non-traditional markets.
“We hope to see ratification of CETA [Comprehensive Economic and Trade Agreement] with Europe in 2017. The companies that are set to go and preparing well, will be in full development of a business strategy. There will be immediate competitive advantage with respect to Europe and further down the road for the TPP. 2016 is a great year to get your business case ready.”
Winterhalt also sees Canadian exporters discovering new regional markets in 2016.
“We’re seeing many Canadian companies using markets like Singapore, South Africa and areas in Europe as sources of initial investment,” Winterhalt said. “But, it’s the ability to establish an international footprint in a single country that allows them to access broader opportunities within the region.”
He suggests Canadian exporters look at markets in Sub-Saharan Africa. He also sees Indonesia as a major new market for 2016. “It is the absolute size and scope of that economy — approaching 300 million people, which is not that far off the size of the U.S.,” he said, and added that Australia and developed Asia are other markets to watch, as are China, India and Mexico.
China will be a country to watch Canada moves closer to a free-trade agreement with the economic giant.
When it comes to sectors, Winterhalt sees the most opportunity in power, water, wastewater, clean technologies, oil and gas and extractive.
On the homefront, the thing to watch will be the Agreement on Internal Trade, which the provinces promised to renegotiate by March 2016.
“Whatever comes out of that meeting, when they announce their progress, will be critical for Canadian exporters,” said Brian Kingston, senior associate at the Canadian Council of Chief Executives. “We’ve been long making the point that can’t become a global exporter if you operate in a fragmented domestic market. Any efforts to reduce internal barriers will help companies scale up in Canada and then move out into the world.”