THE BLOG

Are Exports Driving Our Economy?

08/14/2014 03:43 EDT | Updated 10/14/2014 05:12 EDT

OK, you're right -- this is really last week's news. But it is worth repeating. For a good many months now, economy watchers of many stripes have been looking to Canadian exporters to take the wheel and drive the economy forward. It has been an anxious wait, but it finally seems to be happening. Exports are on an impressive, multi-month growth stretch. So, is it sustainable this time, or is disappointment just delayed a bit longer?

Actually, growth in Canadian merchandise exports is nothing new. Following the crisis in 2009, exports staged an unexpectedly vibrant recovery. In early 2011, it accelerated even more to what looked like a recovery-style pace. But that faltered in the latter half of that year, and stayed in a holding pattern through mid-2013 at levels still considerably below the previous peak. It fit well with the common story of lackluster global growth with little difference expected anytime soon.

Then along came 2014. Actually, it began last December, in spite of weather challenges in the US that became more grave as winter really set in. In spite of this significant challenge, Canada's merchandise exports saw gains in five of the past seven months, and pretty stunning ones, at that. In fact, the current seven-month spurt is a post-crisis rarity, exceeded briefly in the stimulus frenzy of late 2009 and during that false start in mid-2011. What's even more inspiring is that the current run has at long last taken exports beyond the previous 2008 peak, a long-awaited milestone that was achieved in May and affirmed in last week's release of the June data.

It's pretty obvious that price swings have had a major effect on Canada's trade data over the past decade. So is the recent success just due to price movements, or is it more substantial than that? Well, strip the prices away, and we get the same basic story. The recent growth spurt is as dramatic in price-adjusted terms as it is including price movements. That's critical, because what's underway at the moment represents actual physical movements of goods, which of course is key to job creation and investment spending. And these volumes are just a hair behind their previous peak in April of 2007. Quite an achievement.

There's more. This isn't some lopsided surge that is only affecting one or two industries. Scan the latest report, and it's clear that thus far in 2014, seven of the eleven major industrial groupings are sustaining growth in exports that is well above the increase in economy-wide GDP. In fact, the food, consumer goods, forestry and energy sectors are each sporting double-digit gains in year-to-date performance, and exports of machinery and equipment are not far behind. The same is true if we net out price movements - this is the real deal.

At the same time, imports are mirroring weakness in the domestic economy. Their recent performance has paled in comparison with this year's slide in the loonie, compounding the softness of domestic demand. This has been great for the balance of trade, which has moved convincingly into the black for the first time in almost three years. If there is a concern in these numbers, though, it's that imports of machinery and equipment - which should be on a tear as exporters invest to increase their industrial capacity -- are alarmingly soft. Since the bulk of our industrial equipment is sourced elsewhere, weakness of this class of imports suggests that exporters may face imminent capacity constraints as foreign demand continues rising.

And that certainly looks likely. The nascent increase in exports isn't just a US thing. Canada is seeing growth in other OECD countries, and it's even picking up in emerging markets. If we are right, and this is just the beginning of the next global growth cycle, then we can expect to build on what we have experienced to date, and in multiple global markets. Put it all together, and it seems clear: the much-anticipated rotation in growth from the domestic economy to exports - on multiple fronts - is underway.

The bottom line? Patience and the ongoing commitment to Canada's global trade agenda are paying off. Canada's trade performance is gaining significant lift in spite of early-year headwinds and ongoing concerns about competitiveness. It suggests that long-dormant business investment may also be in for a growth rotation of its own.