Fall 2017 Trade Confidence Index: Taking a More Critical Look at the Next Six Months

Exporters’ confidence in their sales is decreasing.

• 15.6: ^16.1   _{˅ 0.5}   Domestic sales
• 16.6: ^17.0  _{˅ 0.4}   Export sales
• 13.2: ^13.4  _{˅ 0.2}   Domestic economic conditions

Some of exporters’ fastest-rising concerns are:

• Seasonal demand
• Global Protectionism
• Interest rate hikes

Exporters are more confident about future international opportunities.

• 13.3: ^12.8   _{˄ 0.5}    World economic conditions
• 14.8: ^14.7   _{˄ 0.1}    International business opportunities

Exporters are feeling increasingly optimistic about:

• Improvements in the global economy
• Lower oil and gas prices
• Increased foreign opportunities

Small and large businesses are feeling the pressure — but medium-sized businesses remain upbeat.

• 73.4: ^73.6  _{˅ 0.2}   Small business TCI
• 74.5: ^73.7   _{˅ 0.8}  Medium business TCI
• 71.6: ^74.0   _{˅ 2.4}   Large business TCI

All regions experienced a decline in confidence, with the biggest being a drop of 2.7 points in the Atlantic.

Information and Communications Technology and Infrastructure and Environment were the only sectors to experience a TCI increase since Spring 2017.

This season’s TCI drop isn’t unexpected — with so much uncertainty throughout 2017, it’s hard to imagine that businesses wouldn’t be affected.

Here are some changes Canadians are watching out for:

The impact of NAFTA

Canada, the U.S. and Mexico have a deeply intertwined trade relationship thanks to NAFTA. With the Agreement being renegotiated, many Canadian businesses are feeling more cautious about North American trade.

With CETA in force as of September 21, Canadian exporters now have better access to a high-opportunity market with 500 million potential customers — but are they acting on it?

• 18% - Businesses developing new products, services or production processes for Europe
• 15% - Businesses increasing production to expand existing export volumes to Europe
• 26% Canadian business paying more attention to the European market

Although it’s been an exciting year for Canada’s Free Trade Agreements, 56% of exporters indicated that FTAs have no effect on their exporting strategy.

Other than the U.S., Canadian businesses’ activity in current market destinations decreased slightly.

Between the current Canadian dollar and increasing interest rates, many businesses are feeling strain from the economy.

36%: ^46%  _{˅ 10%}  The number of exporters who believe they will benefit from the current value of the Canadian dollar has decreased since Spring 2017

On top of the low dollar, increased interest rates are impacting Canadian exporters.

• 21% - Exporters who indicate that higher interest rates negatively impact their exports
• 48% - Exporters impacted who say that high interest rates cost them more and lower their profit margins
• 34% - Exporters negatively impacted who are not planning to adapt to new interest rates
• 11% - An increased proportion of exporting companies believe that the terms and conditions for obtaining financing will worsen

At-home growth has also dampened somewhat since Spring 2017.

• 37%: ^40%  _{˅ 3%}    A smaller proportion of exporting companies indicated they plan to increase hiring in the next 6 months
• 30%: ^30%  _{˄ 6%}    A larger proportion of exporters indicated that getting access to skilled labour will be very difficult

Exporters’ confidence may have dropped slightly, but it’s not all bad news. Canadian businesses have a lot to feel optimistic about.

International investments are holding steady, with 23% of companies investing or planning to invest outside Canada.

Of companies investing:

• ^˄ 65% - established new branches
• ^˄ 45% - built new warehouses
• ^˄ 19% - acquired a foreign company

And even at home, where exporters are the most uneasy, companies have good reasons to believe they’ll continue to find success in the coming months:

• ^˄ 15% - developed new products
• ^˄ 12% - experienced growing demand for their products
• ^˄ 9% - have forecasted domestic sales growth

The surge of confidence in the Spring 2017 TCI was unexpected, and despite uncertain political and environmental climates, today’s TCI is still 1.2 points higher than this time last year.

Over the years, we’ve witnessed—and survived—much greater TCI drops. So, while it’s smart to stay cautious, now isn’t the time to hold back on finding new international opportunities for your business.