Newfoundland and Labrador’s lumber industry is expected to get a boost next year when the U.S. housing market rebounds, says Export Development Corp.’s chief economist.
Peter Hall, in his annual luncheon address in St. John’s — part of a yearly cross-Canada tour the organization takes every year — said the EDC predicts a nine per cent increase in Canadian forestry exports this year and a 13 per cent increase next year, on the strength of 700,000 U.S. housing starts this year and one million next year.
“If we’re right on the timing of that, 2012 is going to be a very interesting year. We’re going to have a very hard time keeping up with the growth that gets generated, principally in the U.S. economy, but it’s quickly going to fan into the rest of the world,” he said.
Overall, Hall said, Canada’s expected to see a 12 per cent increase in exports this year and seven per cent in 2012, with higher commodity prices helping to offset a higher Canadian dollar, which weakens Canada’s export strength.
“We’ve got this unstoppable Canadian currency. It’s affecting every exporter around the country,” he said. “Many exporters like yourselves are telling us that something above parity is something that they can’t deal with at the moment. Now, contracts and hedging and so forth are carrying us through this point, but we believe that if the currency remains as high as it is at the moment, that we will be feeling the effects in a couple of months as those contracts start to mature.”
Hall said the good news is that the EDC is predicting the dollar to drop slightly to an average of 98 cents US next year. They’re also predicting a $95 barrel of oil in 2011 and a $90 barrel in 2012 (based on the West Texas Intermediate benchmark, different from the Brent crude figure the provincial government uses in its projection of $108 oil this year).
Those same high commodity prices are the reason for EDC’s prediction of a 17 per cent growth in the province’s exports this year — tied with New Brunswick, behind only Saskatchewan’s 19 per cent — but the slide in commodity prices, as well as declining output, has the EDC seeing just four per cent growth in 2012. Hall said the four per cent growth sounds pessimistic, but underlying that will be strong growth in mining, which he called happy news for the province on the international trade front.
Despite Hall’s concerns about the fragility of the recovery — and the fact that the world economy has been shaken this year by natural disasters — the momentum towards returning to a global balance has made this year’s speaking tour much more pleasant, he said, especially in Newfoundland and Labrador, which outperforms the other Atlantic provinces in surveys on business optimism.
“If we’re right on the timing of that, 2012 is going to be a very interesting year. We’re going to have a very hard time keeping up with the growth that gets generated, principally in the U.S. economy, but it’s quickly going to fan into the rest of the world." Peter Hall
“We have already sensed … the optimism that is shared inside the province here. It’s good to be able to feel that. Things have been good, things have picked up, and we’ve got the sense of that in conversations that we’ve had throughout the morning,” he said. “And so it’s nice, particularly for someone like me, who’s had to go around the country over the last three years and continuously talk about how terrible everything is. It gets awfully depressing, and I must say I’ve got new wings on this tour here, because that momentum is building and things are picking up. And I’m glad for the first time in three years to be able to wear a smile on my face up at the podium here and to prove to you that we are not perpetual doom and gloomers here at EDC.”
The key for continuing export strength for the province and the country is to diversify by targeting emerging markets, such as the BRIC — Brazil, Russia, India and China — as well as the United Arab Emirates, Indonesia, Mexico and South Africa. While the rising dollar has stultified U.S. export growth to just 0.7 per cent, sales to emerging markets rose over 12 per cent every year from 2001 to 2008, before the recession hit.