*** EXPORT SPECIAL *** 2003: A rough crossing for Canadian exporters

Canadian exporters have turned more cautious about the business outlook, while remaining optimistic about the future overall, according to Stephen S. Poloz, Vice-President and Chief Economist at Export Development Canada.

The EDC’s latest survey of over 1000 companies found the "Trade Confidence Index" (TCI) has eased back to 76.1 from 80.3 six months ago. This puts exporter confidence roughly mid-way between its high of 85 during the boom in mid-2000 and its low of 68 just after the terrorist attacks of September 2001.

"The survey resonates well with the notion that 2003 will be a decent year for international business, albeit not a great year – in effect, a “rough crossing” between last year’s weakness and a solid 2004," Poloz, a well-respected commentator on the export market says. "The pullback in confidence is also consistent with our monitoring of the world economy, which has changed since our Global Export Forecast last October, and not for the better."

Poloz points out the heightened risk of a conflict with Iraq and Venezuela’s general strike have boosted oil prices to over $30 per barrel. Also, the European economy is faltering, especially in Germany; paradoxically, taxes are being increased rather than cut in order to avoid a prolonged breach of the fiscal stability pact agreed as part of monetary union. On the other side of the ledger, global stock markets have staged a partial comeback, President Bush has introduced a fiscal stimulus package, and the U.S. dollar has finally started to come back down to earth.

"The biggest unknown at the moment is how events in Iraq might affect the global economy. Venezuela’s general strike is unlikely to persist for too much longer, and OPEC appears willing to adjust output to help stabilise oil prices. A short, decisive engagement in Iraq would likely produce significantly lower oil prices, and bring about a healthy pick-up in global economic growth," Poloz says. He fears that a longer, more uncertain conflict might leave prices over $30 for an extended period and produce a deeper global slowdown.

"At this time, the most we can do is sketch the ballpark business will be conducted in: if oil prices average $24-26 for the year, the world economy is forecast to grow 3.1%; oil prices of $30 and $20 give growth of about 2.6% and 3.6%, respectively," he says. "These figures represent a modest downgrading of our outlook for the world, with most of the revision in Europe. World economic growth will be led by developing Asia."

Poloz forecasts the U.S. economy will grow by about 2.7% this year and U.S. consumers will remain engaged, both because the threat of terrorism makes people inclined to spend, and because the switch from equity to housing investment promotes consumption. Investment spending will recover as well, he says, because the slow growth outlook means that companies will face continued tough business conditions, and will have to spend money to make money. In this context, Canada will again lead the G7 economies, with growth of 3.5%.

"The bottom line? Our earlier description of 2003 as a rough crossing for corporate navigators remains apt. Yet once the uncertainty about Iraq subsides, the odds still favour a gradually improving outlook for international sales, with up to 6% growth in Canada’s exports for 2003," Poloz says.