Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.
What's Behind the Plunge in Trade Confidence?Wednesday, December 14, 2011 > 11:18:20
(Export Development Canada – Peter G. Hall)
Can we trust our instincts? These days, that's a tough call. We are bombarded with data that is slumping one day and soaring the next. Worse still, the related analysis seems to ride the same roller-coaster, fogging the view even more. The rough ride is weighing on sentiment, and Canadian exporters are no exception: in mid-autumn, their confidence plunged to the fourth lowest level on record, throwing Canada's positive trade outlook into doubt. Are all bets now off?
The recent slump is dramatic. The Trade Confidence Index (TCI) shed 9.2 points in the autumn poll, the second largest semi-annual tumble in the survey's 11-year history. What is more, this puts the TCI in the same zone seen just prior to both the tech wreck and the 2009 collapse in global trade. If the TCI is still blessed with great foresight, we could all be in for a nasty shock. Why the sudden setback?
Consider the context. The survey was conducted in the first two weeks of October. This followed a significant weakening of global growth over the summer months, and turmoil in bond markets as Euro-fears escalated. Stock markets were also in recoil, down 18.1% from earlier-year peaks. Adding insult to injury, commodity prices – especially base metals – were in freefall during September. Small wonder exporters were in shock.
But is this enough to undermine trade? Maybe not. Check out movements in the TCI's five components. The largest down-shift was in the perception of near-term economic conditions. Confidence in world conditions melted the most, with 60% of respondents expecting a worsening, up from just 22% in the spring; only 9% expected an improvement. Those expecting an improvement in domestic economic conditions shriveled to just 12%, while a quarter of those polled foresee deterioration. Exporters were somewhat more bearish about international business opportunities.
Oddly, exporters were not nearly as pessimistic about actual sales. Almost half of respondents expect near-term improvement in international sales, down modestly since the spring, with a further 39% expecting status quo. Results for domestic sales were not as strong, but only 10% predict slower sales, a marginal increase since the spring.
Does this make sense? Exporters have been rattled in the past months, not the least by events in Europe and the disaster in Japan last March. Among respondents, 20% said that these events have impacted their activities. But somehow, their order books have remained fat. Thus far in 2011, new manufacturing orders are up 16% at annual rates, and unfilled orders are up by a stunning 26%. These orders will soon turn into sales, strongly suggesting that deterioration is not imminent.
Although it has proven to be a reliable bellwether in the past, the TCI may be experiencing its first false start. It wouldn't be alone. US consumer confidence tanked at the same time, only to recoup its losses in the November survey. Similarly, while sentiment sagged, sales stood stalwart - further evidence that for a moment, the world seemed to lose its collective nerve in spite of solid activity.
The bottom line? Oftimes we can trust our instincts, but this time they seem to have let us down. We can only hope so – if they are right, exporters are in for a drubbing.