At the beginning of the year, hopes were high that international trade would step up. With economic data for the first half of 2013 are almost all tabulated, is Canadian export performance surpassing, meeting or falling behind early-year expectations?
A quick fly-by of the numbers could be quite discouraging. Compared with last year, the 2013 numbers don’t look that great across a number of industries. But here’s where a bit of context is useful. In each of the prior three years, exports entered the year with great momentum, only to falter in the summer months. This wasn’t due to normal seasonal variation, but in each case was the result of significant extraordinary and unpredictable events. This year is different: hopes were high at the outset, but without the same momentum factor. As such, year-over-year data aren’t great. But there may be a brighter story in more recent developments.
On the whole, monthly export movements have been quite decent, if somewhat volatile, since last December. Exports have grown at an annualized pace of 5% since then, getting some assistance from global price movements and the weaker Canadian dollar. Fluctuations in activity are at least in part due to carry-over effects from the disruptive impacts of Hurricane Sandy and the late-2012 U.S. fiscal cliff, and more recently the U.S. end-March sequestration. With these events largely behind us, U.S. demand is relatively intact and Canadian export growth has resumed, suggesting a stronger and more stable path in the second half of the year.
Despite the U.S. disruptions, exports stateside were actually a strong driver of overall trade in the first six months of the year. Whether measured by monthly growth or year-to-year gains, the U.S. was better than average on all metrics. Other OECD nations were the laggards. Traffic to those locations is also volatile, but export numbers are almost singularly indicating the softness of the EU, Japan and other OECD economies. Like the U.S., emerging market stats were also ahead of average, but counter to recent experience, the U.S. numbers actually edged ahead in the January-June period.
Recent results were buoyed by industries higher up the value chain. The energy and metals sectors disappointed, underperforming the average. However, the grouping including chemicals, plastics and rubber was a standout, in spite of facing tight pricing conditions. In line with growing U.S. momentum, exports of consumer and forestry products are also doing very well. Normally volatile, the aerospace industry has also racked up impressive growth in recent months.
Key to overall performance are the auto, industrial machinery and electronic products sectors. In each case, recent growth has picked up considerably, but it’s making up for less-than-stellar performance in the second half of 2012. Matching or exceeding last year’s figures will require further vibrant growth.
On the whole, recent performance is a relief. Last year’s second-half slowdown was a blow to most industries, testing already-weak confidence. Overall export numbers are not quite what we thought they would be at this point, and clearly, more growth will be needed if the export sector is to move into the role of growth engine for the Canadian economy. Currently, the general direction is encouraging, and late-breaking key indicators suggest that global momentum is going the right way.
The bottom line? Canada’s economy is still in transition from the faltering engine of the domestic economy to the high-potential international trade engine. The switch is taking time, weighing on progress, but current conditions point to increased export momentum in the remainder of the year.
Peter G. Hall is vice-president and chief economist at Export Development Canada.
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