Canadian companies will rely more on the emerging markets of China, Southeast Asia and Latin America — and less on the United States — as their primary source of trade growth over the next six months, according to the latest HSBC Trade Confidence Index.
This is echoed by the recently released annual review of trade by Statistics Canada which reported trade with the U.S. decreased from 76.3 per cent of Canada's total trade volume in 2001 to 62.5 per cent in 2010.
Global trade confidence remains positive on the index at 114 — down by two points from October 2010, according to the survey of more than 6,000 companies across 21 markets.
Canada remains relatively unchanged at 109 — down from 110 in October 2010 and the same as May 2010.
Overall, Canadian companies continue to look to the U.S. as a trade partner (96 per cent). Yet, they also report increases in trade relationships with many other regions, namely Southeast Asia and Latin America, both seeing a seven-per-cent increase, and China and Western Europe (excluding the United Kingdom), both with a six-per-cent increase.
"For future growth, diversification beyond traditional markets will be a key strategy,” said Mark Watkinson, senior executive vice-president and head of commercial banking for North America at HSBC. “Canadian companies are turning more and more to opportunities in emerging markets because the economic environment in the United States remains fragile and because the strength of the Canadian dollar makes Canadian goods more expensive for U.S. importers."
For 38 per cent of Canadian companies surveyed, the U.S. remains the most promising region for trade growth over the next six months. However, this is a 17-percentage-point drop from the October 2010 survey. China (18 per cent), Latin America (10 per cent), Southeast Asia (6 per cent) and Central and Eastern Europe — excluding Germany — (five per cent) round out the top five growth hot spots, found the survey.
The outlook of Canadian businesses on the global economy over the next six months is improving. Fifty-seven per cent of respondents expect to see an improvement in the economy over the next six months, a nine-percentage-point increase from the October 2010 index.
Canadian respondents are increasingly comfortable the global economy is stabilizing and are less concerned about future economic contractions, found the survey. However, almost one-fifth of respondents expressed concerns over fluctuations and increases in the cost and availability of raw materials, many of which have seen price increases over the past six months.
As a result, respondents' concern that suppliers will not honour trade agreements rose by 10 per cent over the past six months. Where fluctuations in cost barely registered as a concern in May 2010 and not at all in October 2010, it now shares top rank as the leading reason for suppliers not honouring their trade agreements, found the survey.
Similarly, suppliers expect a slight increase in the risk of buyers defaulting on payments and they will increasingly turn to options such as advance payment, tightened payment terms and export credit insurance in order to mitigate their risk.
As the Canadian dollar remains above parity with the U.S. dollar, the impact on trade flows is noticeable. Forty-one per cent of respondents said foreign exchange fluctuations will be unfavourable, compared to 33 per cent in October 2010, found the survey.
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