Economy Country's trade picture to darken in 2009, Export Development Canada predicts

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Eric Beauchesne
Canwest News Service

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OTTAWA - Oil prices will sink well below US$100 and the Canadian dollar will retreat to the mid-90 cents US level, the federal export promotion agency said in its latest forecast Thursday.

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Sanjit Das/Bloomberg news

A young man, surrounded by advertisements for Hutch, Airtel, Sony Ericsson, Samsung and Motorola, speaks on his mobile phone outside of a phone store in New Delhi, India. Emerging markets, such as India and China, are expected to continue driving demand this year before succumbing more fully to the global slowdown in 2009, predicts Export Development Canada.

Exports will rise by 4.2 per cent this year, Export Development Canada predicted, but added that all of the increase will come from higher energy prices as the volume of trade is projected to fall by four per cent.

And the outlook for exports next year is no brighter despite the more competitive currency as the retreat in prices for oil and other commodities pulls exports earnings down by one per cent, it said.

"Since our spring global export forecast, there hasn't been much good news for Canadian exporters," said EDC chief economist Peter Hall.

"Losses due to the U.S. subprime crisis and its spill over effects into Canada continue to mount, the impact of soaring commodity prices upon consumers continues to increase, and proof of slowing global production is rampant," he said. "The gain of four per cent in exports in 2008 is actually an energy price story, but when all price effects are removed, Canadian exports are actually on track to tumble by four per cent this year."

The loonie is expected to remain near parity through the summer before retreating to the 94 to 97 cents US range by the first half of 2009, a retreat reflecting what it also expects will be a sharp fall in oil prices.

Crude prices, which have already sunk to around the US$125 level from a record high of about US$147 earlier this month, will drop below US$100 a barrel by year end, and average just US$84 per barrel in 2009, the EDC said.

However, higher prices for natural gas will still boost Canada's energy exports by almost 40 per cent this year, before falling seven per cent in 2009, it said.

"While EDC recognizes that global supply and demand for crude is tight, we see signs that a large price correction is on the horizon." Hall added, noting that the global slowdown will weaken demand as supplies rise.

Further, the EDC suspects that a significant portion of the recent spike in oil prices is the result of speculative investors seeking safe haven from a falling U.S. dollar and that once the greenback stops falling oil prices will sink.

However, robust global demand for grains and high prices should help buoy the domestic agri-food and fertilizer sectors, it said.

Weakness will continue to be concentrated among forestry, automotive and consumer goods, which are sectors that rely heavily on the struggling U.S. market, however, the drop in the Canadian dollar will provide some relief in 2009, it said.

The EDC sees little evidence that the U.S. is ready to emerge from its economic slump.

"The U.S. housing market is in the doldrums, and prices have further to fall," it noted. "The U.S. consumer remains saddled with mortgage debt, imports are slowing, and weakness is expected to spread to the rest of the world."

Meanwhile, Japan continues to flirt with recession, and the growth outlook for the Eurozone has softened, it said, predicting that economic growth in developed markets is forecast to slow to just 1.8 per cent through 2009 from what was a three per cent rate of expansion between 2003 and 2007.

Emerging markets, such as China and India, are expected to continue driving demand this year before succumbing more fully to the global slowdown in 2009, it said.