No one said 2003 would be easy for Canadian exporters.
No sooner had we begun to deal with last year’s discoveries of corporate malfeasance than the drumbeat of war began. And when the Iraq war finally became reality, it was soon competing for the headlines with SARS.
Economic growth is the product of ordinary people making ordinary decisions to spend or invest, and the first reaction of ordinary people to uncertainty is hesitation. Major economic decisions are being put off, and the world economy has clearly paused in the early months of 2003 as a consequence. The question is, when does a pause become a negative dynamic process, in which case the economy not only pauses but enters a new downturn?
Our analysis of the global economy indicates that, setting aside the current level of uncertainty, the global glass is half full, not half empty. The seeds of recovery remain in place, and left to develop they will grow. But regardless whether the best description is half full or half empty, the use of the word half goes to the heart of the matter: the global economy is operating well below its potential, and it is clearly vulnerable to more bad news.
As the uncertainty due to geopolitical tensions and SARS dissipates, we expect the world economy will get back on track. The pause in economic activity in the first half of the year will give way to modest global growth, which should average 2.9 per cent for the year. This will make 2003 feel similar to 2002 in terms of growth, but we should end the year on a more positive footing, and move to a higher growth plane in 2004.
In this global context, Canada will remain a solid performer, with growth of 3.2 per cent forecast for 2003. World economic growth will be led by non-Japan Asia, especially China and India. U.S. growth should be about 2.2 per cent. Europe will lag, Japan even more so, but South America will gradually get back on track.
Canadian exporters have weathered two years of declining sales in a row, for the first time in 50 years. After a difficult start, 2003 promises to be a year of modestly higher export sales, with three-per-cent growth forecast, excluding energy exports, which will rise much more due to higher prices. Key sources of strength will be traditional resource sectors such as chemicals, ores and metals, while moderate growth is expected for agri-food, forestry, consumer goods and industrial equipment. Autos face a soft outlook, while aerospace exports are likely to decline again this year.
Geographically, the fastest- growing markets will be in non-Japan Asia, Eastern Europe and the Middle East. Our exports to the critical U.S. market will rise six per cent this year, but much of that growth is explained by strong energy prices.
The bottom line? 2003 looks right now to be a difficult year for Canadian exporters, even if there is no more bad news. Nonetheless, assuming that geopolitical tensions ease through the next few months, positive momentum should be restored in the global economy by mid-year. If so, then 2004 promises to be a much stronger year for Canadian exporters.
(Stephen Poloz is vice-president and chief economist for Export Development Canada. He can be reached at spoloz@edc.ca)
