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Finlayson: Rebound in global trade augurs well for B.C.'s economy (Troy Media)

Economic growth has been tepid in B.C. in the past two years, with inflation-adjusted gross domestic product (GDP) eking out an average annual gain of barely 1.5 per cent.  But the picture should brighten over 2014-15, as consumer spending strengthens, some momentum returns to the job market, and the province’s export shipments continue to expand.   

The latter factor – stronger export growth – will be particularly important in creating a more positive economic environment.  According to the latest forecast from the World Trade Organization (WTO), the volume of global trade is on track to increase by 4.7 per cent this year, followed by a 5.3 per cent jump in 2015. This represents a significant turnaround from the sluggish 2.2 per cent annual pace recorded during 2012-13.  It’s also good news for the thousands of B.C. companies involved in selling various goods and services to foreign customers.

Over the past two decades, international trade has grown twice as fast as world production or GDP.  That relationship has recently broken down, in part due to the lingering effects of the 2008-09 global recession and financial crisis and the unusual volatility in equity, bond and foreign exchange markets in many emerging economies.  Looking ahead, the WTO predicts the volume of trade will accelerate as financial markets stabilize and economic activity picks up in the United States and the European Union – which together account for approximately half of total global output.  Emerging markets collectively are also projected to see somewhat brisker economic growth after a sluggish performance over 2012-13.          

The WTO projections referenced above apply to merchandise or goods trade only; they don’t include trade in services.  Today, many types of services are sold across national borders – including travel, transportation, financial services, computer and information services, and a wide range of scientific, professional and technical services.  Global trade in services is approaching $5 trillion per year, equivalent to a bit less than one-quarter of international trade in goods.  And trade in services has been growing more quickly than merchandise trade for much of the past decade, a trend that’s expected to continue.      

What does all of this mean for British Columbia?  The province’s exports should gather steam in 2014-15, on the heels of a decent showing last year.  In dollar terms, B.C.’s merchandise exports rose by 6 per cent in 2013, despite a soft global economy and declining prices for coal and base metals (both are important B.C. exports).  Further export gains are in store. 

The Business Council forecasts that B.C.’s international merchandise exports will climb by 8-9 per cent per year over 2014-15, fueled by modestly stronger global growth, a reviving U.S. economy and homebuilding sector, and the competitive advantages conferred by a weaker Canadian dollar.  This is broadly in line with the spring 2014 forecast published by Export Development Canada.  We also expect tourism and other tradable service industries with a substantial presence in B.C. to benefit from the more favourable macroeconomic and exchange rate backdrop.

Although Canadian policy-makers and business leaders lately have been focusing more attention on Asian markets, it’s wise to remember that the United States remains by far B.C.’s biggest trading partner, absorbing close to half of the province’s merchandise exports (and an even bigger slice of our service exports).   So the anticipated pick-up in the underlying rate of growth in the $16 trillion American economy promises to have major – and positive – implications for many of the export-oriented industries that heavily influence overall economic performance here in British Columbia.  

Export Development Canada Forecast

(annual % change in value of Canadian merchandise exports, by sector)

  2013 (Actual)    2014 (F)       2015 (F)   
All Products 3.6% 6.0% 6.0%
Energy Products 6.0% 7.0% 4.0%
Forestry 12.6% 12.0% 11%
Meals, ores and related products 0.0% 6.0% 8.0%
Industrial machinery and equipment -1.9% 7.0% 13.0%
Advanced technology products -0.4% 5.0% 3.0%
Motor vehicles and parts -0.8% 3.0% 4.0%
Aircraft and parts 4.1% 4.0% 8.0%
Consumer goods 11.2% 3.0% 7.0%
Agri-food products 5.7% 11.0% 3.0%
Fertilizers -4.9% 4.0% 2.0%
Chemicals and Plastics 7.2% 2.0% 5.0%

Source: EDC, April 2014 forecast.


As originally posted on Troy Media:

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