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The Bottom Line: Exports more diversified in 2006


The final numbers are now in for Canadas trade in 2006. Many exporters will remember 2006 as a tough year, but there are some rays of sunshine between those clouds.

Canadas total exports of goods and services were worth $524 billion in 2006, of which $459 billion were goods and $65 billion in services. This was an increase of only 1% over 2005, after growth of 5.1% in 2005 and 7.1% in the boom year, 2004. 2006 was slow, it is true, but it is worth recalling that Canadas exports saw an extended period of decline just a few years ago: during 2001-2003, Canadas exports fell outright three years in a row, cumulatively by about 6%.

Scratch beneath the surface, though, and we find some reason for encouragement. Exports of goods and services to emerging markets rose by 8.2% in 2006, down from 9.9% in 2005 and 18.4% in 2004, but still strong. Of course, this good performance was almost completely offset by the slowdown in trade with the major economies, where exports were down by 0.1% in the year.

Scratch a little deeper and we discover that our slowdown in exports to the major economies was all about the U.S. Exports of goods to the U.S. fell by 2.1% in the year, mainly due to weakness in autos, forestry products and regional jets, and because of lower natural gas prices. In contrast, exports to the European Union were up by over 15%, on the strength of precious and industrial metals, aerospace, chemicals, telecom and other high-tech equipment and pharmaceuticals.

Meanwhile, there were some really big increases in trade with emerging markets, particularly the BRICM group Brazil (up 21%), Russia (up 54%), India (48%), China (8%) and Mexico (25%). Other standouts were Saudia Arabia (25%), the United Arab Emirates (38%), South Africa (44%) and Nigeria (135%). The categories of strength vary, but agri-food, pulp and paper, metals, fertilizers and chemicals figured prominently, along with telecom, AT and other machinery.

Emerging markets are likely to exhibit trend economic growth at least double that of the major economies for a long time to come. Therefore, it is natural to see Canadas trade rising more rapidly for these countries. Furthermore, the process of globalisation of supply chains is concentrated in these lower-cost countries, so growth in supply trade (as opposed to traditional export trade) is also likely to be concentrated in the emerging markets.

Therefore, it is interesting to see an emerging trend in Canadas trade: since 2002, when the current global expansion took hold, the share of our merchandise exports going to the U.S. has fallen from 86.8% to 81.9%. The share of our exports going to Europe has risen from 4.9% to 6.9% in the same period, Asia is up from 5.3% to 6.7%, the Middle East from 0.5% to 0.9%, and eastern Europe from 0.2% to 0.5%.

The bottom line? 2006 was a tough year, and all indications are that 2007 will be challenging, too. Evidence shows that exporters are responding, though, by diversifying their export markets around the world a sound strategy that should serve them well in the next global cycle.

Stephen Poloz is Senior Vice-President, Corporate Affairs and Chief Economist, Export Development Canada. His column on trade-related issues appears weekly on www.ctl.ca.