Surprise Rise in Trade Confidence

Canadian exporters have lots of reasons to be fearful. Anti-trade rhetoric is higher than at any point in recent memory. Free trade agreements are being scuttled, or renegotiated. There’s a real-time threat to the world’s largest economic union. With myths about the negative effects of globalization being promulgated by some of its greatest beneficiaries, and a disenchanted public all too willing to gobble it up, those in the international trade sphere could be forgiven for registering plunging confidence.

In fact, the political turmoil of the past year – the surprising Brexit vote, the unexpected US election outcome, current European political discourse and the like, are a prescription for tumbling confidence on a number of fronts. However, surveys are indicating the opposite. US consumer confidence has zoomed up to pre-recession heights for the first time since the international debacle. European consumers are seeing a surge of optimism, and current levels compare well with feelings in good economic times. European business confidence is at its highest point since the post-recession outpouring of stimulus, and is rising. And as mentioned before, buyers in companies all over the world are betting on a bulge of near-term growth.

Our exporters seem to agree. EDC’s latest Trade Confidence Index survey might have seen a turn for the worse. Instead, confidence turned upward to an Index score of 73.9. It’s not much of a change from recent showings, and under other circumstances, would be seen as a pretty ho-hum result.

But against the souring trade policy backdrop, three of the five Index elements rose, and the other two – world economic conditions and international business opportunities – each held the line. The rise in export sales expectations was led by those seeing new customers, growing demand and increased activity, production and introduction of new products. Inside the static result for world economic conditions, an interesting dichotomy: 47 per cent of those fearing worse conditions cited global instability, and 39 cited the instability arising from the US election. However, among those expecting better circumstances over the coming six months, 21 per cent – the largest single grouping – pointed to improvements in the US economy.

The rise in the Trade Confidence Index came with conviction: it was broadly-based on a number of fronts. All six industry sub-groupings clocked gains in confidence, with the extractives sector – oil, gas and mining – notching more than a 10-point increase. At the same time, all regions with the sole exception of Quebec saw an increase in overall confidence levels. Even so, Quebec’s loss was marginal, and its overall Index score was still higher than in all other regions.

Current turbulence had us wondering what, if anything, had Canadian exporters lying awake at night, worrying. The survey asked respondents to choose the three sources of volatility that might impact their companies most in the coming six months. US policy uncertainty – that is, things like NAFTA renegotiation and border taxes – troubles 82 per cent of those surveyed. Almost half of respondents fear a rise in global protectionism. These are the dominant fears, but just over one third of those we polled cited political violence/terrorism as well as slowdown in East Asia (China and/or Japan) as potential disruptors of their business.

If there is an antidote to this insomnia, it has to be actual business performance. To augment the actual Index results, we asked about orders, specifically from the US. An overwhelming majority – 84 per cent – said that US orders were either increasing or remaining the same – about evenly split between the two. That’s up from the result last fall, suggesting that in spite of last year’s populist pivot, businesses on both sides of the border are just getting on with their lives, and likely crossing their fingers and hoping for the best.

It’s clear from these survey results that optimism dominates. It’s not a bad tack to take. After all, the policy commotion is all about making economies great again. That is achieved by boosting growth and spreading its benefits. If this is already occurring, business – and the broader economy – has what it needs.

The bottom line?

Against daunting odds, Canadian exporters are more upbeat than last fall, and it’s all about strong trade flows. Let’s hope for everyone’s sake that policy doesn’t wreck things.

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