Last fall’s crisis of confidence sent worldwide gauges of business and consumer sentiment reeling. A growing sense that the global economy is no longer in freefall has recently increased the feel-good factor. Canadian exporters concur: the abject pessimism recorded six months ago has faded, with the Spring 2009 Trade Confidence Index posting its largest one-period gain since the post-9/11 surge.
The jump in confidence is needed relief. The spring result interrupted a three-period tumble dating back to the fall of 2007, with each successive drop setting a new record low level. Market turbulence in the fall of 2008 only deepened what was already a serious loss of confidence. As impressive as the current gain is, it lifted the index to just a whisker above the previous low point in the fall of 2001.
Key to improved sentiment is a sense that both global and domestic economic conditions will improve. About one-quarter of respondents see brighter near-term prospects, up sharply from the previous survey. There was an even more dramatic change in the share of those expecting worse conditions. From a clear majority in the past survey, the pessimists shrunk back to about a quarter of total respondents. The remaining half of exporters in the survey expect current conditions to persist – hardly comforting, given the very subdued current levels of international trade activity.
Exporters are less enthusiastic about actual sales prospects. Although 37 per cent of respondents expect near-term international sales to increase, the share fell slightly from the fall 2008 result, and is well below the 50 per cent norm. Domestic sales are not expected to fill the gap. True, 30 per cent actually expect domestic sales to climb in the coming months, a slight gain over the previous survey – but the share is down from 40 per cent a year earlier. For both foreign and domestic sales, the dominant group is the share of exporters expecting no growth – again, a sobering result given the current state of demand.
Trade confidence rose in all industry categories, but gains were not shared equally. The largest single increase was in the transportation sector, a surprise given auto-sector woes and the challenges facing the aerospace industry. The infrastructure and environment category was next in line, with a 9-point gain, likely a reflection of the substantial stimulus funds governments around the world have aimed at infrastructure projects. Gains were lowest in the light manufacturing and extractive sectors.
The recent flight of the Canadian dollar has taken most exporters by surprise. Two-thirds of those surveyed expected a stable or declining dollar. And while the remainder indeed expected a gain, their ranks thinned out from 40 to 34 per cent. Exporters’ preferred currency strategy is to simply ride out the loonie’s ups and downs. Fewer intended to make more structural changes – like cost-cutting, business model changes, outsourcing and reconfiguring production – to accommodate the dollar. However, a small but rising share is relying on currency hedging as a shield against possible shifts.
Most exporters have put hiring increases on hold, but at the same time, those expecting to decrease hiring are few. Two-thirds expect to maintain the status quo, not a bad result all things considered.
The bottom line? Trade confidence has sprung from the depths, a needed boost. The gain reflects the end of export freefall, but comes short of stating that Canadian exporters are out of the woods.