Exporter confidence plummets amid high dollar and U.S. economic slowdown, says EDC survey

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(OTTAWA) — January 24, 2008 — Confidence levels among Canadian exporters have declined dramatically as the full weight of a significantly higher Canadian dollar and a slowing U.S. economy hit home, according to the semi-annual Trade Confidence Index (TCI) survey from Export Development Canada (EDC). The overall index declined to 67.4 from 72.9 per cent in June 2007, the lowest result since EDC began reporting on trade confidence in 2000.

“Only six months ago, even with a high dollar and significant signs of a U.S. downturn looming, exporter confidence actually increased. What we’re seeing today is a very sudden and steep decline in the persistent optimism of the two previous surveys,” said Peter Hall, Vice-President of Economics and Deputy Chief Economist, EDC.

The TCI survey demonstrates that Canadian exporters are more pessimistic about all five of the core TCI indicators: trade opportunities, export sales, domestic sales, and both domestic and global economic conditions. Compared to six months ago, 38 per cent of exporters said that they expect trade opportunities will worsen in the next six months, 30 per cent believed that global economic conditions will also worsen and 25 per cent said that they expect export sales will drop.

Despite the record-breaking highs for the Canadian dollar, over 40 per cent of exporters believe the dollar will continue to increase in value over the next six months. However, the rising dollar is also creating import and investment opportunities for exporters. For example, about one-third of the Canadian exporters surveyed said that they were planning to increase their imports and investments in plant and machinery over the next six months. Over the past few years, the survey has reflected the persistent uncertainty that exporters see in the outlook for the Canadian dollar, suggesting an unusually challenging business planning environment.

The survey shows that 92 per cent of exporters believe that the Canadian dollar plays an important role in a company’s ability to compete in foreign markets. The majority of exporters price their goods and services in U.S. dollars, and for many, the rise in the Canadian dollar has cut into their profit margins. To restore their margins, 33 per cent of exporters (up 7 per cent since spring 2007) are cutting costs and 27 per cent (up 5 per cent since spring 2007) are raising the U.S. dollar prices of their exports. Other strategies, such as currency hedging and changes to business models, showed modest declines.

“Given the long-standing reticence to hiking prices, this shift in strategy is likely a hint of the heightened ‘dollar duress’ exporters currently face,” continued Mr. Hall.

Compared with last fall, the overall decline is seen across all broad industrial sectors. The most notable decline was found in the transportation sector, largely related to developments in the automotive industry, which saw exports fall in 2007. The information, communications and technology (ICT) sector was the most optimistic with a TCI score of 72.7 despite experiencing a significant drop from the spring 2007 survey (down from 76.3).

Regionally, Western Canada posted the most optimistic score of 70 despite declining from 74 since June of 2007, followed by Quebec at 68 (down from 73), Ontario at 66 (down from 72) and Atlantic Canada at 66 (down from 75).

The TCI is a composite score based upon responses from Canadian exporters to five questions that measure increases or decreases in optimism on future global and domestic sales, economic conditions and trade opportunities for the next six months.

Search Inc. conducted the survey in November 2007. A total of 1000 Canadian businesses participated, and the TCI was calculated on a total of 826 respondents. The survey results are considered accurate to +/- 3.4 per cent, 19 times out of 20.

For more information about EDC and the Trade Confidence Index, visit www.edc.ca/english/docs/ereports/tradeconfidence/country_information_index_e.htm.

EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 6,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and is a recognized leader in financial reporting, economic analysis and has been recognized as one of Canada’s Top 100 Employers for seven consecutive years. www.edc.ca.