The uncertainty created by the aftermath of September 11 makes it impossible to be definitive on the outlook for Canadian exports in the year ahead. A turnaround in export performance is not expected until the middle of next year at the earliest, according to the semi-annual global export forecast issued today by Export Development Corporation.

“Businesses and consumers now face unprecedented levels of uncertainty and risks as the implications of September 11 for the global economy have yet to be fully realized,” says EDC vice-president and chief economist Stephen Poloz. “Since it is impossible to predict how consumer psychology will be affected, we are advising Canadian exporters that they plan on two possible scenarios,” says Mr. Poloz.

EDC’s forecast includes scenarios for both a delayed recovery and a recession. Under a delayed recovery scenario, Canadian export sales are expected to contract 4% this year, recover slightly and grow by about 1% in 2002. In a recession scenario, export sales would contract by 7% this year and decline by a further 6% in 2002.

Next year, EDC expects world economic growth to gradually improve to reach 3.4% under the delayed recovery scenario. However, if the downturn in the global economy–attributed to the lingering effects of the “tech wreck” of last year and the potential impact of the terrorist attacks on consumer confidence–becomes an outright recession, world economic growth would be about 2.6% in 2002. This scenario would see the global economy remain weak until at least mid-2002.

The Canadian dollar is likely to edge higher as the world economy heals, but could first move lower should the recession scenario emerge. The global healing process is also likely to produce a renewed erosion in the value of the U.S. dollar against the euro.

Nearly all Canadian export sectors face continue lower growth prospects, regardless of which scenario emerges. Sectors expected to be hardest hit, include: aerospace, energy, telecommunications, computers and automotive.

•The aerospace industry is expected to end this year with flat growth. Next year, the sector’s growth prospects worsen. Under a delayed recovery scenario, exports are expected to drop 4% and in a recession, would decrease 14 %.

•Similarly, energy exports will suffer because of cutbacks resulting from the terrorist attacks. Exports are expected to weaken further next year, despite a gradual recovery in demand in the U.S. Under the delayed recovery scenario, sales would fall by 12% but in a recession scenario, would fall by 38%, given the attendant drop in global energy prices.

•Telecommunications export sales are likely to drop next year by between 6 and 10%, depending on the severity of the global slowdown. This follows a 30% decline this year.

•Automotive exports under performed for much of this year and prospects for 2002 remain stalled. Exports are forecast to drop a further 2 to 3% next year as the economic downturn is expected to continue at least into the first half of 2002.

The bright spots in a sea of otherwise weak export prospects next year are agri-food and consumer goods sales. Agri-food exports should grow by between 6 and 13% in 2002, depending on which scenario proves dominant, and consumer goods sales should grow by 6 to 9%.

Export sales to the U.S. are expected to remain flat for 2002 under a delayed recovery scenario and contract by 8% in a recession scenario. Looking beyond North America, EDC’s delayed recovery scenario calls for positive growth in export sales to most other markets. But the recession scenario would see declining sales in a wide range of non-U.S. markets, including Europe, Mexico and South America.

Provincially, the clearest evidence of slower export sales this year will be seen in Alberta and Quebec as several key industries are forecast to post negative growth prospects in 2002. On a brighter note, Newfoundland and New Brunswick are expected to experience positive export growth next year due primarily to the continued strength of their energy sectors. As well, Manitoba’s exports–the most diversified in Canada–are projected to grow at or above the national average because of the strength of the agri-food industry. Under a recession scenario, all provinces would experience flat or declining sales.

“These are indeed very difficult and challenging times for Canadian exporters, who face not only an economic slowdown but also the intensifying political risks and uncertainty,” adds Mr. Poloz. “Now more than ever, companies should ensure that their business plans include whatever risk management strategies are necessary to protect the bottom line.”

A copy of EDC’s semi-annual global export forecast is available on EDC’s web site (www.edc.ca). The report provides a comprehensive analysis of global economic and political developments as well as detailed analysis from a provincial and sectoral perspective.