EDC’s Trade Confidence Index (TCI) is a composite score based on responses to five questions on future global and domestic sales, economic conditions and trade opportunities.  The survey is conducted with a random sample of 1,000 Canadian companies in a cross-section of industries, regions and sizes. The latest reading is 70.6 out of a possible 100 points, a decrease of 5 points from the spring 2004 survey but still ahead of the 67.7 recorded in the months following  9/11.

While exporters’ outlook for domestic sales remains positive, exporter confidence has deteriorated for international opportunities, export sales and overall economic conditions, both global and domestic. Key barriers to export growth, according to respondents, include the higher value of the Canadian dollar, slower global economic growth and geopolitical uncertainty.  Nearly one quarter of companies anticipate a decline in their international opportunities in 2005, up from only eight per cent last spring. The number of respondents expecting a decrease in foreign sales has nearly tripled to 18 per cent. Pessimism about 2005 export sales and international business opportunities is greater among larger companies than smaller businesses.

Overall, two thirds of Canadian businesses cite the value of the Canadian dollar as critical to their ability to compete in foreign markets. Sensitivity to the Canadian dollar is even more pronounced among companies in the consumer goods, agri-food, base and semi-manufactured goods and industrial equipment sectors, and among larger companies. Half of the polled companies predict an increase in the value of the Canadian dollar over the next six months compared to 22 per cent last spring. Canadian businesses, however, have not shifted strategies to deal with a stronger dollar. Most indicate they have either just absorbed the loss (29 per cent), or cut costs through efficiencies (22 per cent) or currency hedging (12 per cent).

About 60 per cent of surveyed businesses say that the value of the Canadian dollar influences their export growth “a great deal”.  Other factors affecting their growth in foreign markets include higher insurance premiums and new U.S. customs security legislation.

A quarter of Canadian businesses believe global economic conditions will worsen, compared to 17 per cent last spring. All industry sectors, except for energy and information technology, registered a drop in trade confidence levels.  Sharpest drops in confidence levels were reported in the transportation, forestry, consumer goods and agri-food sectors, with both high energy costs and a strong dollar impacting their competitiveness and export earnings.

While confidence levels fell in all regions, declines were largest in Ontario, reflecting predictions of poorer performance in the transportation sector, and in Western Canada, reflecting uncertainty over live cattle exports, declining energy sales and slower lumber sales.  

Despite the drop in trade confidence, the survey recorded a slight increase in Canadian direct investment in foreign countries.  Some 23 per cent of companies surveyed have or plan to have production outside of Canada, up from 19 per cent last spring, with expanding or upgrading existing facilities, joint ventures and new direct investments as the primary investment methods.  The United States continues to be the top destination for Canadian foreign direct investment at 45 per cent, followed by Western Europe (15 per cent) and China (8 per cent).  The United States also remains the top preferred market for export growth, with a notable renewed interest in Europe, where confidence in the pace of economic growth in Central and Eastern Europe increased. 

Despite the attention that growth in China attracted last year, Canadian business perception of Asia as a preferred export market (in third place after the U.S. and the European Union) remains unchanged since 2003.  However, the number of Canadian businesses who perceive Asia as a risky market increased to 38 per cent from 26 per cent in the spring.  Canadian exporters also believe that the Middle East is less risky (18 per cent) than was the case in the spring survey (26 per cent). 

Despite lower trade confidence levels, companies remain positive about their hiring practices with one-third predicting their company will increase hiring.

EDC Economics expects global growth to ease to about 3.9 per cent in 2005 compared with 4.5 per cent in 2004. Global economic growth in 2005 should hit a modest and sustainable stride around the world:  2.9 per cent in Canada, 3.6 per cent in the U.S., 6.5 per cent in Asia, 8.2 per cent in China, 5.1 per cent in Central & Eastern Europe, 4.6 per cent in Russia, 1.7 per cent in Western Europe and 1.7 per cent in Japan.

Opinion Search Inc. conducted the survey in November 2004.  The survey results are considered accurate to +/-3 per cent, 19 times out of 20.

The full survey can be accessed at: http://www.edc.ca/docs/ereports/tradeconfidence/index_e.htm

The update to EDC’s Fall 2004 Global Export Forecast is available at:
http://www.edc.ca/docs/ereports/gef/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 on commercial principles.

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Contact:

Glen Nichols  
Public Affairs - EDC      
Tel: (613) 598-2876  
glnichols@edc.ca