EDC forecasts global growth to average 2.6 per cent this year and 3.6 per cent next year. Canada's economy is expected to grow by 2.5 per cent this year supported by a 2 per cent increase in export sales, making up for last year's declines. Export sales should be even stronger next year, growing by close to 9 per cent as the Canadian economy is forecast to expand by 4 per cent

"Canadian exporting companies can look forward to rising sales this year and next", says EDC vice-president and chief economist Stephen Poloz. "But this recovery will be an unusual one and the ride could be bumpy for awhile."

The rebound in the first half of this year will give way to slower growth in the second half as the initial inventory rebuild is completed. Job creation, particularly in the United States, will lag the recovery and there will be intense pricing competition in the global manufacturing sector. The potential for financial volatility will be high given the lingering stresses due to last year's slowdown. Interest rates will increase and the U.S. dollar will decline against most other currencies, including the Canadian dollar which should rise to around the US 70-cent level over the next 12 to 18 months.

"There will be periodic concerns about the durability of the recovery, particularly as interest rates rise," adds Poloz. "Rising rates won't represent a tightening of monetary policy, simply a return to neutral.

They won't halt the recovery and should instead be viewed as confirmation that the economy is healing."

The improving economy and large production cutbacks in the resource sector mean global commodity prices should continue to firm up and EDC is forecasting further improvement over the next 12 to 18 months.

EDC is also forecasting the following sector outlooks:

· Global telecommunications should emerge from the "tech wreck" storm to post modest growth this year. Canadian telecom exports should bottom out late this year and return to positive growth of 5 per cent next year. Telecom equipment, computers and parts will be the most improved growth performers next year as the investment climate turns more positive.

· Canadian aerospace exporters should continue to see double-digit growth in sales this year and next, even though the sector will be a significant under-performer at the global level. Most of the weakness will be concentrated in the large aircraft sector.

· Continued weakness is forecast for the global automotive sector this year and it will be 2003 before the sector returns to steady growth. Canadian exporters of automotive products can expect another decline this year, but should see exports rise by about 4 per cent next year once the economy fully recovers.

· Canadian energy exports are expected to fall by 3 per cent this year, but to rise by 12 per cent in 2003. Although sales volumes will continue to grow, gas prices will be lower this year, on average, while oil prices will trend slightly higher. Spare capacity among OPEC producers should limit any near-term spikes in the price of oil.

· Forestry exports are expected to drop by 3 per cent this year, but a stronger global economy will contribute to 9 per cent growth next year.

· Agri-food export sales will see above average growth this year and next as a combination of supply shortages and improving demand boosts prices for many products.

Provincially, growth will be led by the major agri-food producers, PEI and Manitoba. Newfoundland and Labrador will also post strong growth as new energy production capacity comes on stream. Most of the other provinces will see soft growth, either because of lingering weakness in auto or telecom exports or, in the case of BC, forestry exports.

Canada's export sales to the U.S., Western Europe, Asia and Japan are expected to post positive growth this year and register even stronger growth next year. Sales to Mexico, China and India will also show continued positive growth while sales to South and Central America and the Middle East are expected to struggle, registering declines again this year before returning to positive growth in 2003.

Poloz says the global economy also remains vulnerable to trade protectionism, the fragile situation in Japan and possibly more financial crises in Asia and Latin America. But "the good news is these particular risks should abate as the economic recovery strengthens."

Attached is a copy of the Executive Summary of the Global Export Forecast which is also available on the Web site at: www.edc.ca/docs/country/economics/ExportForecast/EFindex_e.htm

EDC provides trade finance and risk management services to Canadian exporters and investors in up to 200 markets. Founded in 1944, EDC is a Crown corporation that operates as a commercial financial institution.

For more information , please contact: Rod Giles, EDC Media Relations

Executive Summary

The global economy is once again taking flight. World economic growth will be on a rising track during the next 12 to 18 months, reaching cruising altitude sometime around mid-2003.

We expect global growth to average 2.6% this year and 3.6% next year. The Canadian economy will grow by 2.5% this year, supported by 2% growth in export sales, which will make up for last year's export declines. Export sales growth will pick up even more next year, to close to 9%.

Despite this lift-off, Canadian exporting companies should remain prepared for turbulence this year, because this recovery will be an unusual one. The surprising rebound in the first half of this year will give way to slower growth in the second half. Job creation will lag the recovery and the global manufacturing sector will face intense pricing competition. The potential for financial volatility will be high, with interest rates rising and the US dollar declining against most other currencies, including the Canadian dollar.

Not much of a recession…but not much of a recovery, either

The global economy has proved to be surprisingly resilient to the events of last September 11. The risk of a protracted recession this year was high, given that the economy was already dealing with the collapse of the technology boom when the terrorist attacks occurred. However, the slowdown mainly affected the global manufacturing sector, which cut inventories extremely aggressively during the second half of last year. Moreover, consumer confidence and spending held up very well, supported by very sharp interest rate cuts.

In the early months of this year analysts were surprised by the vigour of the economic signals and began to extrapolate a powerful economic upturn. However, the economic snap-back will be short-lived. Inventory rebuilding will cause a burst of economic growth for 3-6 months, but the economy will then moderate to a slower, more sustainable pace. There are three reasons for this.

· Consumers cannot snap back when they never retrenched. Debt levels are now very high, and rising interest rates will restrain future spending growth.

· The hangover from the collapse of the technology boom persists. Many sectors of the economy have too much capacity and profits are low, so it will be some time before there is any desire to expand. New investment spending is more likely to be defensive in nature - aimed at improving productivity through equipment replacement or upgrades.

· Many countries only began to experience the echo effect from last year's slowdown in the US during the second half of the year, including Europe, Japan, developing Asia, and Canada. Accordingly, the US-led upturn will not become fully synchronised around the world until the second half of this year.

Since the initial surge in growth will be followed by a much more gradual expansion later this year, the global manufacturing sector will take at least the next 12 months to work off its excess capacity. This will mean continued downward pressure on inflation and the likely emergence of deflationary pockets. Competition for global sales will be fierce, and corporate pricing power will be very limited.

These conditions will spawn a new global wave of corporate restructuring. Companies facing flat or lower prices for their products will invest in new technology to reduce labour costs. As a result, it will take much longer than usual for the recovery to trickle down into the labour market. And there will be periodic concerns about the durability of the recovery, particularly as interest rates rise.

Rising interest rates will not represent a tightening of monetary policy, simply a return to neutral after a period of aggressive cuts. Consequently, higher interest rates will not halt the recovery but instead should be viewed as confirmation that the economy is healing.

The world's major currencies have also been buffeted by the financial storms of the last 3 or 4 years. A return to healthy, balanced economic growth over the next 12-18 months should permit many currencies to move toward a more normal relationship with the US dollar. The Canadian dollar should rise in value by approximately 10% over the next 12-18 months - to around the US 70 cent level - as part of this normalization process.

The world economy will not achieve cruising altitude until sometime in 2003, and there are a number of headwinds that could disrupt that ascent.

The events of September 11 have thrown some sand into the wheels of the global trading system, the world's growth engine. The insurance, financing and border costs associated with international trade and investment have all increased and trade protectionism has once again reared its ugly head. These developments could delay or even abort the world economic recovery, and those countries most dependent on trade - of which Canada is a leading example - would pay the highest price.

Meanwhile, the world remains vulnerable to more financial crises in Asia and Latin America. The world's manufacturers will face intense competition while the economy is gaining altitude. With banking systems still labouring under the legacy of the 1997-99 crises in those regions, the potential for another financial flare-up is real. Moreover, Japan remains a major question mark. It has the potential to cause a major global financial earthquake all on its own. The good news is that these particular risks should abate as the economic recovery strengthens.

Given this backdrop, Canadian exporting companies can look forward to rising sales this year and next, although the ride could remain bumpy for awhile.

Exporters should see their US sales turn around first, followed by Latin America, then Asia and Europe. Canada's agri-food sector should remain a strong performer, along with non-auto consumer goods. Another bright spot is expected to be machinery and equipment exports, including aerospace, although sales of telecommunications equipment may not recover until late in the year. Most resource sectors will see firmer prices and volumes, but the upturn is likely to remain gradual.