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 that trade with the United States decreased from 76.3 per cent of Canada’s total trade volume in 2001 to 62.5 per cent in 2010.
The semi-annual HSBC Trade Confidence Index is the broadest international survey of small and mid-sized businesses engaged in cross-border trade. Results are framed by respondents in 21 markets: Canada, Argentina, Australia, Brazil, mainland China, Egypt, France, Germany, Hong Kong, India, Indonesia, Malaysia, Mexico, Poland, Saudi Arabia, Singapore, Turkey, Vietnam, the United Kingdom, the United States, and the United Arab Emirates. The results are used to calculate an index range from 0 to 200, with 200 representing the highest confidence level, 0 representing the lowest and 100, neutral.
Global trade confidence remains positive on the HSBC Trade Confidence Index, at 114 – down by two from October 2010. Canada remains relatively unchanged at 109 (110 in October 2010, and 109 in May 2010). Businesses in India (140), Saudi Arabia (132), Mexico (125) and Indonesia (123) are the most bullish about trade prospects in the next six months.
Following them, in descending order, are: Turkey (122), the United Arab Emirates (121), Singapore (121), Brazil (116), Vietnam (116), Argentina (115), China (114), the United States (111), Canada (109), Poland (108), Germany (107), Australia (107), France (104), the UK (104), Egypt (102) and Hong Kong (101). Only Malaysia scored in negative territory, at 97.
Overall, Canadian companies continue to overwhelmingly look to the United States as a trade partner (96 per cent). Yet they also report increases in trade relationships with many other regions, namely Southeast Asia at +7 per cent, Latin America at +7 per cent, Greater China at +6 per cent, and Western Europe (excluding the UK) at +6 per cent.
Mark Watkinson, Senior Executive Vice President, Head of Commercial Banking, North America, HSBC said: “For future growth, diversification beyond traditional markets will be a key strategy. 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 US importers.”
Canadian companies will rely less on the United States for trade growth
For Canadian companies surveyed, the United States remains the most promising region for trade growth over the next six months, at 38 per cent. However, this is a 17 percentage point drop from the October 2010 survey. Greater China (18 per cent), Latin America (10 per cent), Southeast Asia (6 per cent) and Central and Eastern Europe ex Germany (5 per cent) round out the top five growth hot spots.
Global economic outlook
The outlook of Canadian businesses on the global economy over the next half-year is improving. Just over half of respondents (57 per cent) expect to see an improvement in the economy over the next half-year, a 9 percentage point increase from the October 2010 Trade Confidence Index.
The new normal is the same as the old normal
Canadian respondents are increasingly comfortable that the global economy is stabilizing and they are less concerned about future economic contractions. However, almost one fifth of respondents are expressing 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 honor 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 honoring their trade agreements.
Similarly, suppliers expect a slight increase in the risk of buyers defaulting on payments, and they will increasingly turn to options like advance payment, tightened payment terms and export credit insurance in order to mitigate their risk.
Finally, as the Canadian dollar remains above parity with the U.S. dollar, the impact on trade flows is noticeable. In fact, 41 per cent of respondents now say that foreign exchange fluctuations will be unfavorable, compared to 33 per cent in October 2010.
About the survey
The semi-annual HSBC Trade Confidence Index gauges sentiment and expectations on trade activity and business growth in the next 6 months from 6,387 exporters and importers across 21 markets. The survey was conducted from February to March 2011. The error rate is +/- 5.7%, at a 95 per cent confidence level.
About HSBC Bank Canada
HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 260 offices, including over 140 bank branches, and is the leading international and trade finance bank in Canada. With around 7,500 offices in 87 countries and territories and assets of US$2,455 billion at 31 December 2010, the HSBC Group is one of the world’s largest banking and financial services organizations.
For further information:
Vice President, Corporate Affairs
HSBC Bank Canada
|Fabrice de Dongo
Senior Manager, Public Affairs
HSBC Bank Canada