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U.S. industrial capacity constraints will fuel Canadian export growth in 2015: EDC


TORONTO, Ont.–Export Development Canada (EDC) has released a new global export forecast that predicts industrial capacity constraints within the U.S. will be a key driver of global economic growth over the next two years.

“Surging U.S. demand has gobbled up the spare capacity in its industrial machine,” said Peter Hall, Chief Economist, EDC. “Producers are cash-rich, and are looking for new places to invest their surplus capital.”

A higher U.S. dollar is also increasing the attractiveness of foreign investments and imports. Together, these forces are creating a huge opportunity for Canadian companies to meet the U.S. economy’s need for goods, services, and production capacity.

“Things are tight stateside, and if businesses can’t add capacity in the U.S., they’ll look to their neighbours for help,” said Hall. “If ever there was a time for businesses, whether small, medium or large, to start exporting to the U.S., it’s now.”

“Consumers in the U.S. are confident again. Employment is up, wages are rising, debt ratios are sinking, and Americans are spending. As a result we’re seeing facilities in the U.S. being pushed to capacity as they scramble to keep up with increasing demand,” added Hall.

EDC’s forecast for the U.S. economy is 3.6 per cent growth in 2015 and 3.3 per cent in 2016.

The value of Canadian exports to the U.S. is expected to decline by 1 per cent in 2015 due largely to the drop in energy prices. However, other sectors will see strong growth with industrial machinery exports topping the charts at 17 per cent.

“While it’s a key growth driver, the U.S. economy isn’t the only game in town,” said Hall. “Spill-over growth will reach Europe, the rest of the developed world and emerging markets.”

Canada’s exports have diversified considerably to emerging markets over the last few years, and that trend is expected to continue into 2016. Just 5 per cent back in 2000, the share of Canada’s exports destined for emerging markets now tops 12 per cent.

“While recent US growth has largely stayed at home, now we’re seeing that growth spill out into the global economy, with very positive impacts,” said Hall. “The U.S. economy is one of the few engine economies that has the horsepower to drive global growth, and that is exactly what we’re expecting for 2015-2016.”

“The recent establishment of a renminbi hub in Canada, together with rising demand, will help to create additional opportunities for Canadian businesses in the Chinese market,” said Hall. “The spectacular growth of the emerging market middle class is creating greater demand for commodities and Canadian-made products.”

While the low cost of oil will have a sharply negative impact on Canada’s energy exports, EDC’s team predicts the positive effects of a lower CAD on sectors outside of the energy sector will result in a net-neutral outcome for the economy overall this year. The lower CAD is also expected to entice more foreign investment into Canada over the next two years.

EDC’s team forecasts Canada’s export growth to be 1 per cent in 2015, and 7 per cent in 2016. The outlook for Canadian GDP is 2.4% per cent for 2015 and 2016.

EDC’s global export forecast calls for global growth of 3.5% this year, and an additional 3.9% in 2016.

“Even though growth is back, businesses and investors should be aware of the risks that are still out there,” said Hall. “Despite significant progress, there’s still a serious fiscal situation in Europe. Commodity prices are unstable. Geopolitical risks abound in Russia, the Middle East, and central Africa, to name a few. These risks and others should always be considered and, where possible, mitigated.”

Hall advised caution. “The global economy is nearing the end of its high-wire act, but there are still a lot of pretty big post-crisis risks lurking out there, and it’s important that businesses insure their activities against these risks.”