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Exporting
Exporter confidence plummets amid high dollar and U.S. economic slowdown, says EDC survey
OTTAWA - Confidence levels among Canadian exporters have declined dramatically as the full weight of a significantly higher Canadian dollar and a slowing U.S. economy hit home, according to the semi-annual Trade Confidence Index (TCI) survey from Export Development Canada (EDC). The overall index declined to 67.4 from 72.9 per cent in June 2007, the lowest result since EDC began reporting on trade confidence in 2000.
"Only six months ago, even with a high dollar and significant signs of a
U.S. downturn looming, exporter confidence actually increased. What we're
seeing today is a very sudden and steep decline in the persistent optimism of
the two previous surveys," said Peter Hall, Vice-President of Economics and
Deputy Chief Economist, EDC.
The TCI survey demonstrates that Canadian exporters are more pessimistic
about all five of the core TCI indicators: trade opportunities, export sales,
domestic sales, and both domestic and global economic conditions. Compared to
six months ago, 38 per cent of exporters said that they expect trade
opportunities will worsen in the next six months, 30 per cent believed that
global economic conditions will also worsen and 25 per cent said that they
expect export sales will drop.
Despite the record-breaking highs for the Canadian dollar, over 40 per
cent of exporters believe the dollar will continue to increase in value over
the next six months. However, the rising dollar is also creating import and
investment opportunities for exporters. For example, about one-third of the
Canadian exporters surveyed said that they were planning to increase their
imports and investments in plant and machinery over the next six months. Over
the past few years, the survey has reflected the persistent uncertainty that
exporters see in the outlook for the Canadian dollar, suggesting an unusually
challenging business planning environment.
The survey shows that 92 per cent of exporters believe that the Canadian
dollar plays an important role in a company's ability to compete in foreign
markets. The majority of exporters price their goods and services in U.S.
dollars, and for many, the rise in the Canadian dollar has cut into their
profit margins. To restore their margins, 33 per cent of exporters (up 7 per
cent since spring 2007) are cutting costs and 27 per cent (up 5 per cent since
spring 2007) are raising the U.S. dollar prices of their exports. Other
strategies, such as currency hedging and changes to business models, showed
modest declines.
"Given the long-standing reticence to hiking prices, this shift in
strategy is likely a hint of the heightened 'dollar duress' exporters
currently face," continued Mr. Hall.
Compared with last fall, the overall decline is seen across all broad
industrial sectors. The most notable decline was found in the transportation
sector, largely related to developments in the automotive industry, which saw
exports fall in 2007. The information, communications and technology (ICT)
sector was the most optimistic with a TCI score of 72.7 despite experiencing a
significant drop from the spring 2007 survey (down from 76.3).
Regionally, Western Canada posted the most optimistic score of 70 despite
declining from 74 since June of 2007, followed by Quebec at 68 (down from 73),
Ontario at 66 (down from 72) and Atlantic Canada at 66 (down from 75).
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