Recession, inflation shoot holes in exporters confidence

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Confidence among Canadian exporters has plummeted as the global economic outlook darkens, with the index, which measures retail firms’ mojo, falling to the third lowest level on record, only ahead of the 2008 global financial crisis and the outbreak of COVID-19 pandemic.

Export Development Canada’s (EDC) semi-annual Trade Confidence Index saw a third straight decline in confidence to 63.8 from a peak of 80.5 at the start of 2021, based on survey responses from 800 exporters in sectors ranging from transportation infrastructure to light industry.

“Exporters face ongoing supply chain problems and rising inflation while navigating a difficult labor market,” said Stuart Bergman, vice president and chief economist at EDC, in a press release. “With the ongoing war in Ukraine and signs pointing to a global economic slowdown, exporters face uncertainty on several fronts.”

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One of the top factors dragging down their prospects, according to exporters, is the possible onset of a global recession, with 77 percent of respondents saying a recession would adversely affect their businesses. Just over half said an economic downturn would have “significant negative impact”, while the rest say it would have “slightly” negative impact.

Global and domestic economic activity was the worst performer of the five measures that make up the Confidence Index, posting similar readings to the financial crisis, the 2009-2010 European debt crisis and the pandemic.

Exporters said a spending cut is also underway in the United States. After recovering from the pandemic in 2021, 21 percent of exporters placed orders The US started falling, up from this year’s earlier survey.

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The Bank of Canada in its latest Monetary Policy Report (MPR) forecast that gross domestic product for 2023 will tread water at 0.9 percent, compared to the 1.8 percent it forecast in July’s MPR. For Canada’s largest trading partner, the USA, the International Monetary Fund (IMF) is forecasting just as low growth of one percent for 2023. Globally, however, the IMF forecasts growth of 3.2 percent for this year and 2.7 percent for 2023.

Exporters are also struggling to deal with rising interest rates, with 43 percent saying it is having a significant negative impact due to higher interest rates, and almost a third reporting a slightly negative impact.

“48 percent of companies now expect central banks to tighten monetary policy deteriorating financing conditions, an increase of seven percentage points Mid-2022,” EDC said.

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The Bank of Canada’s recent rate hike will not help in the short term.

The bank hiked rates another 50 basis points to 4.25 percent on Wednesday. However, there could be relief along the way when the Bank of Canada finishes hiking. It suggested that further increases will no longer factor into future decisions but will be based on the data.

Exporters appear to be aligned with the federal government’s strategy to expand Canada’s list of trading partners, a plan outlined when Ottawa recently announced details of its Indo-Pacific strategy.

The EDC survey revealed increased interest in Asian trading partners such as Japan and Korea. But the US is still the top export destination, followed by the UK, Mexico, Australia and Germany.

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TC Energy Corp. declared force majeure for its Keystone oil pipeline system after an oil spill in a Kansas creek forced the company to shut down the line, according to people familiar with the matter. The giant crude oil pipeline, capable of transporting more than 600,000 barrels of oil from Canada to United States markets, was shut down Wednesday night. West Texas Intermediate oil futures briefly jumped above $75 a barrel. Physical crude oil prices in the Gulf Coast also rose on expectations of tighter supplies following the outage. Traders said they expect the outage to last more than a week as it affects a waterway, which could potentially complicate cleanup efforts. The Calgary-based TC did not immediately provide an estimate of how much crude oil spilled or a timeline for a restart. – Bloomberg

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Approximately two million Canadians are due to pay their fourth and final 2022 tax installment on December 15, and while there are three different options to choose from for how much to pay each quarter, choosing the wrong option can result in late-payment interest and even installment payments, as a couple found out in a recent case before the tax court. Tax expert Jamie Golombek explains.

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Today’s post haste was written by Gigi Suhanic (@gsuhanic), with additional coverage from The Canadian Press, Thomson Reuters and Bloomberg.

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