Responding to the abrupt slowdown in the U.S. economy, decision makers at Canadian exporting companies are far less confident in their international prospects than they were only six months ago, according to Export Development Corporation’s (EDC) latest trade confidence index (TCI) survey.
Conducted in conjunction with Ipsos-Reid, the semi-annual study surveyed executives and decision makers at 1000 Canadian companies and found that the overall TCI dropped to 70.6, a significant decrease from last fall’s measure of 82.1.
Despite the drop in confidence, 57 per cent of Canadian exporters expect their export sales to increase in the next six months, EDC vice-president and chief economist Stephen Poloz said. Although the TCI rate is down 10 per cent from last year, EDC predicts modest export growth this year and this latest study shows that exporters also have confidence in a gradual economic recovery, Poloz added.
“A year ago things were as good as things could possibly get,” Poloz said in an interview with IT World Canada. The severest of the drop was in the IT sector, he added.
The IT sector drop corresponds with recent dramatic changes in technology markets and decreased demand for telecom products.
“The perception is our IT is falling off a cliff, however, we think of it as coming down to earth,” Poloz said.
Poloz said he thought that perhaps there was too much capacity built up by IT vendors such as Nortel Networks and Lucent Technologies in anticipation that the economic boom would continue, however, as U.S. IT purchasers began shelving their business plans these companies were left with a lot of inventory.
“I’m sure there is a [IT] glut and there is a lot of fibre lying around,” Poloz said.
However, IT firms were more optimistic than the average that export sales would increase in the next six months, suggesting companies expect a gradual recovery in IT and telecommunications investment spending in the second half of the year.
“Suppliers face the issue of glut and how long it will take for there to be a recovery,” Poloz said. “It’s not a question how it’s more a question of when.”
Driving the increased spending will be ordinary users of high-tech as they are the ones that know there are productivity benefits they can pick up to keep up with their competitors, pointed out Poloz. For example automakers are already beginning to climb out of the bottom of the economic slump and they were the first to go down, he added.
Similar to consumer confidence surveys the TCI is a summary measure that takes into account Canadian exporters’ views on global economic conditions, domestic economic conditions, trade opportunities, domestic sales and foreign sales. The confidence level is expressed as a figure out of a total possible score of 100. EDC said the survey is the first of its kind to gauge confidence in the Canadian export community.
A random sample of Canadian businesses completed a telephone survey. A total of 1000 respondents participated. Survey results for the entire sample are considered accurate to +/- 4.7 per cent, 19 times out of 20. The TCI was calculated on 576 responses out of the total surveyed.
The survey also reported that: