Like many other developed economies, Canada was hit hard by the global financial crisis, with GDP shrinking by 2.7 per cent in 2009. Since then Canada’s growth has exceeded the average of the developed world every year, partly because of plentiful natural resources such as oil, gas and grain, and its extensive trading relationships.
Canada has an open economy, with import and export flows equivalent to 62 per cent of GDP in 2011. The country’s most important trading relationship is with the US. Given the geographical proximity and the size of the US economy, this will remain the most important partnership for the foreseeable future. But relationships are also growing with emerging markets, a trend that has accelerated since the financial crisis.
In 2012, China overtook the UK to become Canada’s second-biggest trading partner. This is related to Asia’s growing energy needs, since Canada has huge oil and gas reserves. We estimate that in total there are about USD500 billion worth of deals for Canada’s resources all at various stages of negotiation, a number of which involve Chinese partners.
In 2012, China overtook the UK to become Canada’s second-biggest trading partner
Energy is not the whole story, however. Policymakers aim for trade in oil and gas to provide a catalyst for increased business with Asia in other commodities and manufactured goods. Canadian authorities have invested in the “Asia-Pacific Gateway” to support more commerce. This involves a coordinated series of improvements to infrastructure on the West coast, including ports, bridges, airports, and road and rail networks, alongside policy measures to support the swift transport of goods. In 2013, deals to facilitate the export of Canadian beef and canola oil to China were completed.
HSBC’s latest Global Connections report suggests that Canada’s exports to Asia will grow by 12 per cent a year from now until 2030. China accounts for a significant part of this but other Asian economies, including Vietnam and India, will also increase imports. Demand for Canadian technology equipment in particular is likely to increase.
Other Canadian entrepreneurs are looking south. As well as investing in Latin America, Canadian companies are also seeking inward investment. Brazil has put CAD15.8 billion (around USD15.4 billion) into Canada, more than the CAD9.8 billion (around USD9.5 billion) stock of Canadian investment into Brazil. Elsewhere, Mexico is already Canada’s fifth most important export market, and the North America Free Trade Agreement is designed to facilitate the development of trade.
Developed markets offer other possibilities. The decision by Japanese and German governments to move away from nuclear power is likely to increase demand for liquefied natural gas, which Canada is well placed to meet. A trade pact with the European Union – agreed in principle in October 2013 – promises Canadian firms easier access to the EU’s 28 member states. But the benefits from these global opportunities are not guaranteed.
In October 2013, Tiff Macklem, the Senior Deputy Governor of the Bank of Canada, said that the country’s share of world trade had fallen from about 4.5 per cent to about 2.5 per cent since 2000. Over the course of the preceding year exports and net investment had made no contribution to growth. He suggested that the country would need to reduce its reliance on domestic consumers, strengthen its competitiveness and increase business investment to improve the balance of trade. The coming months will show whether, and how fast, this rebalancing will take place.