Canada’s trade growth to return to pre-recession levels: HSBC

Canada’s trade growth is set for rapid growth back to pre-recessionary levels thanks to ties to a resurgent U.S. market, as well as a number of trade pacts and a growing presence in emerging markets.

According to the latest HSBC Trade Forecast, growing trade flows will push real GDP growth in Canada to average 2.1 per cent from 2021 to 2030.

At the same time, amid a low dollar environment and a plunge in world oil prices, greater diversification of Canada’s economy towards exports and business investment will mitigate the impact of sluggish energy export growth, should companies leverage the opportunity.

Deals such as the proposed Trans-Pacific Partnership (TPP), a trade deal with South Korea and potential bilateral trade accords under negotiation with other countries all have the potential to underpin export growth as they expand access to fast-growing economies in Asia, HSBC said. And the TPP and Transatlantic Trade and Investment Partnership (TTIP) agreements also have the potential to bring down trade barriers and expand Canada’s reach in existing markets.

At the sector level, industrial machinery will remain the most important import sector and is expected to contribute more than 20 per cent to total import growth over 2015-30, the HSBC report said. Further, HSBC expects Canada to import less petroleum products over the same period, and that this sector will be less important for imports as domestic supplies and increased refinement ability curb the need to import energy.

“With energy accounting for about a quarter of total export growth from 2015 to 2030, low oil prices and expectations of only a subdued rebound will weigh on exports in the coming years,” the report said “However, a weaker Canadian dollar and lower oil prices will support non-energy export growth in the years ahead.”

Machinery and transportation exports are also expected to grow in importance in export flows, particularly as U.S. demand rises, although the automotive sector faces some competitiveness issues.

Canada’s electronics industry will also remain strong, diversifying away from a narrow focus on communications equipment – a trend that HSBC forecasts to continue in coming years, powering exports growth in electronics. HSBC cites a World Economic Forum report showing a surge in patent applications in Canada’s information and communications technology (ICT) industries.

Electronics imports should rise in the long-term, driven by Canada’s knowledge-based economy, highly-skilled workforce and rising household spending and business investment as the economic mix becomes more diversified. Electronics exports, meanwhile, are forecast to grow about 4 per cent a year on average from 2015 to 2030, but this will be outpaced by growth in imports of electronics averaging more than 6 per cent a year as domestic demand remains firm.

“With faster growth in developed economies and a recovery in emerging markets on the horizon, Canadian trade growth looks set to accelerate back to pre-financial crisis levels,” said Andrew Skinner, head of global trade and receivables finance at HSBC Bank Canada. “But we shouldn’t limit ourselves to returning to status quo levels—uncovering opportunities for new product development and trade partners in fields like electronics, pharmaceuticals and hi-technology would provide meaningful support to Canada’s long-term economic health beyond traditional industries and trade routes.”