Canadian companies are lessening their dependence on the U.S. as a trade partner, with exports now 30% more diversified than a decade ago, according to a new economic report from CIBC World Markets.
“The main catalyst here is the surge in exports to emerging markets and the significant decline in exports to the U.S., which are currently back to the pre-NAFTA levels,” said CIBC deputy chief economist Benjamin Tal.
“At this rate, the U.S. share of total exports will fall to 60% by the end of the decade, with emerging markets picking up nearly 90% of the gain.”
The report noted Canadian companies are taking advantage of historically low interest rates to finance investments – some of which is being used to expand export opportunities.
“Growth in business investment outperformed growth in exports to the U.S. for 30 out of the past 36 quarters—by far the longest duration of outperformance on record,” added Tal.
“And while real exports to the U.S. hardly changed over the past decade, business investment managed to grow by an average annual rate of more than 4%—again a record performance gap.”
He doesn't agree that a strong Canadian dollar is the reason for the surge in capital expenditures. He found that real imports of machinery and equipment are rising today at roughly the same rate as they did when the loonie was much weaker.
Tal noted that, while targeting increased export markets requires extra investment, it also means an improved bottom line.
He added that increased diversification of exports by destination and product is not only necessary to maintain profitability, but is also required to hedge against the increased economic volatility that is likely to be an integral part of the economic landscape.
Tal expects the recent surge in volatility to continue in the foreseeable future and for corporate Canada to adapt to the new reality by becoming more flexible and responsive.
“The post-Great Recession era, and the new mix of economic growth that will define it, could provide corporate Canada with a golden opportunity to restructure itself in a way that simultaneously reduces its dependence on the U.S. economy, and improves its bottom line.”
Jennifer Harrison
@JHarrisonBIV