Canada and its trading partners
This lesson is designed to help students identify the relationship between Canada and its trading partners. Students use two data sources, Summary tables and E-STAT, on the Statistics Canada website to explore the growing importance of trade in general, and trade with the United States in particular. Students will examine the seasonal variations in imports and exports using E-STAT. Finally, they will investigate how the United States affects Canada through other interactions such as the media, immigration, culture, etc.
Contributors: Lorna McLean, Assistant Professor, Faculty of Education, University of Ottawa. Joel Yan, Learning resources Team, Statistics Canada.
- To locate relevant information using up-to-date statistical information to track trends in Canadian trade
- To explore other data sources that quantify the types of interaction between Canada and its trading partners
- To identify the major commodities that are imported to and exported from Canada
- To understand how trade patterns and commodities change over time
- To identify and locate countries to which Canada imports and exports goods
- To develop computer skills using the Internet, databases and graphing software
- To become comfortable using two major sources of Canadian data on the Internet
- To use appropriate vocabulary (e.g., export, import) to describe inquiries and observations about international trade
Suggested grade levels and subject areas
History and Social Studies
Social Studies, Canadian Studies and Geography
World Issues, Canadian Studies and Business Studies
Two or three class periods of 75 minutes.
Imports — goods or services brought into a country from another country.
Exports — goods or services sent out from a country to another country.
Balance of trade — the difference between the value of the goods and services that a country exports and the value of the goods and services that it imports.
Trade surplus — when a country's exports exceed its imports.
Trade deficit — when a country's imports exceed its exports.
Balance of payments — a statistical statement of a country's credit and debit transactions with other countries. It includes transactions covering goods and services and capital transactions such as capital transfers. Because so much economic activity now involves capital (i.e., financial or monetary) transactions, a country's balance of payments provides a more complete picture of its international transactions than balance of trade does.
- Introduce the concept of imports to Canada by
- having students identify which items in their lunch are imported, or
- having students identify which items of clothing they are wearing are imported by looking at the labels.
Summarize and discuss the results.
- Introduce Statistics Canada as the major source of current statistics on Canada, its people and economy. Explain how Statistics Canada collects information through many ongoing surveys as well as the census and administrative data sources such as customs declarations. Importers, exporters, or their agents are responsible for properly completing forms by declaring, among other things, the destination, the value of the merchandise, and the method of transportation used. These forms are compiled by Statistics Canada to produce trade data.
- Using overheads or a computer, describe or demonstrate the Statistics Canada website and its Summary tables module as the main location for up-to-date statistical tables.
- Distribute Student worksheet 1, which introduces trade data and shows that the United States is our major trading partner. When students get to part C, ask them to complete column A before they look at the tables. If students are working in a computer lab, help them locate the data. If not in a lab, distribute printouts of the relevant trade and export tables from Summary tables. Then have students complete the worksheet.
Recommended tables for this activity:
Imports, exports and trade balance of goods on a balance-of-payments basis, by country or country grouping
Exports of goods on a balance-of-payments basis, by product
- For secondary students only, distribute Student worksheet 2, which shows some of the other connections we have with the United States and our other trading partners. If students are working in a computer lab, help them locate the data. If not in a lab, distribute printouts of the relevant tables (listed below) from Summary tables. Then have students complete the worksheet.
Recommended tables for this activity:
Immigrant population by place of birth, by province and territory (2006 Census)
Travel by Canadians to foreign countries, top 15 countries visited
- Introduce E-STAT as an enormous warehouse of reliable and timely statistics about Canada and its ever-changing people. E-STAT can be used to bring data to life in colourful graphs, charts and maps. Using overheads or a computer, describe or demonstrate the features and wide array of data available with E-STAT.
- Distribute Student worksheet 3, which introduces the use of E-STAT for retrieving and graphing detailed trade data by commodity and by country. When students get to part B, step 2, ask them to complete columns A and B before they look at the tables. If students are working in a computer lab, help them locate the data. If not in a lab, distribute printouts of the relevant tables and graphs from E-STAT. Then have students complete the worksheet.
Based on teacher observation, individual and group discussions and answers on their worksheets, students demonstrate that they can analyse, classify and interpret the information.
Have students use E-STAT to
- research trends in trade with another of Canada's major trading partners; and
- look at the pattern of trade in specific commodities (e.g., automotive products, forestry products and wheat). Explain how trade has changed over time and why. What do these findings suggest for employment in the region?
Search The Daily at Statistics Canada's website for trade data releases to write a brief report on current trends in Canada's trading patterns (for secondary students). The Daily is Statistics Canada's official release bulletin and its first line of communication with the media and the public. The Daily issues news releases on the current social and economic conditions and announces new products. It provides a comprehensive one-stop overview of new information available from Statistics Canada. The Daily is released at 8:30 a.m. Eastern time and is posted on the Internet each working day with the exception of data from the Labour Force Survey and the Consumer Price Index available at 7 a.m.
Ask students to use Industry Canada's site at http://www.ic.gc.ca to examine recent patterns in Canadian trade by industry and by country.
Then have students examine other websites, such as the Department of Foreign Affairs and International Trade (www.dfait-maeci.gc.ca).
Ask students to search all their available data sources to find data on Canada's trade in services. What are Canada's main areas of trade in services? What share is trade in services of Canada's total trade? How has this share changed over time?
Canada’s State of Trade: Trade and Investment Update – 2017
Canada State of Trade – Message from the Minister
I’m delighted to present the 2017 edition of Canada’s State of Trade. The results of this year’s annual report show positive signs of export and investment growth in Canada. It’s especially encouraging to see that Canada’s exports to member countries of the European Union rose in 2016, as did our exports to China. Canada’s ambitious and progressive trade agenda is creating new opportunities for export and generating real investment interest in Canada. However, the results also paint a picture of a challenging global trade environment, with lower than expected growth in the volume of exports throughout 2016 and uncertain forecasts of growth in trade over the year to come.
The Government of Canada knows that more trade and more investment means more jobs for Canadians and more economic growth to help strengthen our middle class, as well as those working hard to join it. Canada is a trading nation with a relatively small domestic market. Our prosperity is fundamentally linked to the global economy. There are only 36 million people living in Canada. While Canada represents roughly half of one percent of the world’s population, we account for 2.5 percent of global merchandise exports. For our businesses to succeed and create good middle-class jobs, we must trade with the world and encourage global investors to set up shop in our communities.
This is why the Government of Canada is taking a leadership role in helping to address some of the challenges in the global trading environment. Canada is pushing back against the growth of protectionist sentiments by pursuing a progressive trade agenda. Progressive trade means doing everything possible to ensure that all segments of society, both in Canada and abroad, can take advantage of the economic opportunities flowing from trade and investment—with a particular focus on women, Indigenous peoples, youth, and small and medium-sized businesses.
Progressive trade also means ensuring that trade agreements include strong provisions in important areas such as labour, environmental protection, gender equality and that they reinforce the continued right of governments to regulate in the public interest. An excellent example of progressive trade in action is the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. CETA is a comprehensive blueprint for responsible economic cooperation between countries. It’s a forward-looking agreement that reflects a truly progressive trade agenda—one that protects the ability of societies to promote the public good.
Today, the solution to global economic challenges is to make trade work for people. It is incumbent on governments to work together to strengthen the multilateral trading system, which can and does raise living standards. Indeed, liberalized trade has already lifted millions of people out of poverty. As a founding member of multilateral institutions such as the World Trade Organization (WTO), Canada has been at the forefront of building today’s global trading system. The progressive trade agenda that Canada is now pursuing will help to maintain that leadership role and ensure that current and future generations can benefit from global trade.
The Honourable François-Philippe Champagne MP
Minister of International Trade
Stronger manufacturing and trade activity, supported by partial recovery in commodity prices, has been observed in multiple regions and economies in the second half of 2016, leading many analysts to predict that the long-expected cyclical recovery is finally here. Though global growth estimates indicate that real global output slowed down from 2.7-percent growth in 2015 to 2.4 percent in 2016,Footnote ES-1 several key economic players, especially among the advanced economies, performed over and above expectations in the second half of the year. This is particularly true for the United States, the United Kingdom and Japan. Germany and Spain put in a strong year overall; China’s growth remained strong; India suffered through a hiccup at the end of the year due to its monetary reform while Brazil spent the year deep in recession.
The improving economic conditions were accompanied by gains in economic confidence and market sentiment, particularly in developed economies. Production of durables and capital goods is increasing, along with investment and trade. Commodity prices, which hit lows in early 2016, have strengthened considerably during the year, benefiting resource exporters and helping them shore up their balances. Likewise, supportive monetary policies and a mildly supportive fiscal stance further encouraged growth at the global level. Among headwinds, the most prominent were the long-term issues: aging population and relatively weaker productivity growth.
The forecast by the IMF expects fiscal policy at the global level to be broadly neutral in 2017 and 2018, with substantial variation at the country level. Financial conditions are expected to remain accommodative, and commodity prices to strengthen moderately. Global growth is expected to pick up to 2.9 percent in 2017 and to 3.0 percent in 2018; Canada’s economy is expected to grow 1.9 percent in 2017 and reach 2.0-percent growth in 2018.
In addition to aging population and weak productivity growth as undercurrents, short-term risks to the outlook are considerable and remain biased to the downside. The prime areas of uncertainty affecting the forecast relate to: a possible disruption of global trade, capital flows and migration; uncertainty of the U.S. policy agenda; dilution of worldwide financial regulation; tightening of economic and financial conditions in emerging markets; and non-economic factors (geopolitical tensions, conflicts, terrorism, etc.).
Global trade volumes grew at a very weak rate of 1.3 percent in 2016, considerably below the 2.4-percent growth in world output—the first year that trade growth lagged output growth since 2001. Both cyclical factors and the weakness in global investment were responsible. Real imports from developed economies grew 2.0 percent in 2016, while developing economies’ imports stagnated at 0.2 percent. Real exports showed modest growth from both developed and developing economies.
Conditions differed among the economies and regions that are key to Canadian commercial interests. The economy of the United States slowed down early in 2016 and lost its leading position in economic growth in the G7. But much stronger performance is expected in 2017, when it is poised to regain its growth advantage among the largest developed economies. Good news is coming from the labour market and equity markets, with fiscal stimulus under the new administration also a possibility.
Mexico has begun slowing down after two years of solid growth, even as its commercial role within NAFTA continued to increase. Mexico is the third-highest import supplier to Canada, providing as much merchandise as Germany and Japan combined, and its products are crucial for several of Canada’s key industries: automotive, electric and electronic machinery, and mechanical machinery. Mexico’s near-term outlook is clouded due to uncertainty emanating from the United States, but this also represents an opportunity for Canadian business and governments to forge stronger ties in various areas. Much the same applies to other countries in Latin America and the Caribbean (LAC), Canada’s hemispheric neighbours that stand to lose the most under the policy uncertainty emanating from the United States.
Economic growth in the eurozone stabilized just below 2 percent and is expected to keep steady in the short term. The policy stance remains more conducive to growth than during the 2010-2013 period, and some of its short-term electoral risks have been avoided. A strong historical commercial association with this region was further strengthened last year with successful ratification of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Its implementation in the coming year should provide unrivalled opportunities for Canadian businesses and consumers, especially in services.
Growth continued to be strong in the countries of emerging Asia. China’s economy continued its transition from investment-based to domestically driven growth; its real exports of goods and services resumed growth in 2016 while inflation and unemployment remained stable. In 2016, Canada took a major step to tighten commercial ties with China by opening exploratory talks on a free trade agreement. India is expected to continue to realize its tremendous growth potential; throughout the region, dynamic economies are specializing as large export platforms in electrical and electronic machinery, apparel, services and other areas.
Against the background of global economic developments, Canada’s economy charted a path similar to that of other developed economies through the year 2016, but not for the same reasons. After a strong first-quarter performance, growth slid into negative territory in the second quarter due to the disruptions in oil production following the Alberta wildfires. As the industry and community recovered from that natural disaster with a boost to output, strengthened consumer confidence and renewed investment drove growth to 3.8 percent in the third quarter, and it remained strong at 2.6 percent in the fourth quarter. The overall 1.4-percent growth for 2016 was half a percentage point higher than in 2015 and not far from the current estimated potential of the economy; growth performance is expected to rise to about 2.0 percent in the short term.
Canada’s labour force and population age situation was better than in most advanced countries, as well as was its fiscal situation. Net exports contributed positively to growth for the fourth consecutive year after a decade of drag, and that contribution was higher than the boost from federal government activity. Employment expanded by 0.7 percent and exceeded 18 million jobs, while the unemployment rate declined to 6.9 percent (and was down to 6.5 percent by April 2017). The Canadian dollar spent most of the year near the US 75¢ mark. Over the course of the year, the loonie appreciated in value against the U.S. dollar and the European euro, was stable relative to the Japanese yen, and gained greatly against the British pound.
Although the declines in commodity prices moderated during 2016, they continued to exert substantial influence on Canada’s trade. Overall export prices fell 13.8 percent in the energy sector and 1.1 percent overall; meanwhile, the price index of Canada’s imports rose 1.2 percent. As a result, Canada’s terms of trade deteriorated further in 2016, dropping 2.0 percentage points to 91.4 percent of their 2007 level.
The adjustments to these changing terms of trade meant that the volume of exports increased 0.5 percent while the volume of imports fell 1.3 percent; nominal values of both exports and imports of goods declined slightly in 2016. Services, on the other hand, recorded expansion. Exports of services rose 4.8 percent, with imports growing 2.0 percent. Notably, the travel deficit (the principal cause of Canada’s trade deficit in services) shrunk considerably in 2016. Among commercial services, the largest absolute increase occurred in exports of telecommunications, computer and information services, an encouraging development for the industry. The trade deficit for goods widened while the deficit for services narrowed in 2016. The sum of all these developments left the balance on Canada’s current account largely unaffected in 2016 as the deficit edged up a notch to $67.7 billion.
Detailed examination of Canada’s merchandise trade shows that exports declined slightly by 1.4 percent (or $7.1 billion) to $516.9 billion, and so did Canada’s merchandise imports for the first time since 2009 (down 0.6 percent) to reach $533.3 billion. Weaker energy revenues were behind the decline; export volumes were stable for crude oil and increased for gas. Among top destinations, the largest relative increase in exports occurred to Mexico (up 14.8 percent). The proportion of exports destined for the United States declined, but growth in exports to other top destinations meant that the concentration of Canadian exports increased both for the top 10 destinations (to 90.9 percent) and the top 20 destinations (to 94.7 percent). Conversely, import concentration decreased for both the top 10 and top 20 sources. Imports from the United States and China declined in 2016, but increased imports from Mexico, Japan and South Korea offset a significant portion of that decline.
Among notable trade developments, automotive exports rose 45.7 percent to Mexico and 136.4 percent to China. Exports of pharmaceutical products continued their robust growth, gaining 12.8 percent in 2016. Since 2011, exports in this category increased 132.2 percent—an average annual rate of 18.3 percent a year—making pharmaceutical products Canada’s ninth most important export commodity. Imports of electrical machinery and equipment from Vietnam continued growing explosively, up over 60 percent in 2016 and over 1,500 percent in five years.
Global foreign direct investment (FDI) flows declined to US$1.5 trillion in 2016, down from their highest level since the Great Recession began, which was reached in 2015 and fueled by a resurgence in mergers and acquisitions (M&A) activities. FDI inflows into developed economies decreased slightly during the year, though the inflows into the EU dropped nearly 30 percent. However, inflows into developing economies declined at roughly twice the pace of the decline into the developed economies (down 20 percent).
FDI inflows into Canada declined by 15.8 percent in 2016, to $44.7 billion. Inflows from the United States dropped by almost 40 percent, while inflows from the rest of the world increased by 83 percent. The overall reduction in investment flows was mainly due to a decline in M&A activity. Foreign inflows decreased in management of companies and enterprises, as well as other industries, but more than doubled in manufacturing, and also increased significantly in mining and oil and gas extraction as well as finance and insurance. The stock of foreign investment in Canada rose 4.7 percent to $825.7 billion; notably, the proportion of that stock originating in the United States remained below 50 percent this year. The manufacturing sector and the mining and oil and gas extraction sector remained the largest targets for foreign investors.
Canada’s direct investment outflows increased slightly in 2016 to reach $88.0 billion. Negative investment flows in mining and oil and gas extraction changed sign to become positive; significant upturn in M&A activity drove the increase in flows in trade and transportation. Canada’s stock of investments abroad also edged up, as the appreciation of the Canadian dollar largely offset strong activity during the year. Canada’s net direct investment position narrowed slightly in 2016, but remained in large surplus.
1. Global Economic and Trade PerformanceFootnote 1-1
Eight years after the global economic and financial crisis of 2008-09, the global economy has finally shifted into higher gear at the end of 2016. Stronger activity and signs of strength in diverse sectors and regions point undeniably to a cyclical recovery in manufacturing, trade and investment across the world. Economic confidence and market sentiment are growing, production of durables and capital goods is ramping up, and global investment is trending up, bringing global trade along with it. Commodity prices have strengthened considerably from their lows in early 2016. It is, therefore, highly ironic that just as the world economy seems to have turned the corner, the considerable downside risks that could put a halt to the long-awaited global recovery turned out to be lurking right behind that corner. Despite strong prospects and an optimistic outlook, the calibre of the downside risks has grown immensely during the year. The year 2016 is to be remembered as the time when the citizens of the two great pillars of post-WWII order voted for their countries to turn inward, away from the global community. These events cast a shadow over the global rules-based trading system and both the economic and human cross-border flows that these two countries have done so much to create and support. Both the Brexit vote in the United Kingdom and the presidential election in the United States carry a potential for radical changes to the world economy, the precise dimensions of which cannot be calculated at present with any degree of confidence. Aside from the risks, structural problems such as persistently low productivity growth and pressures for strictly domestic solutions continue to put a lid on the strength of the recovery.
Real GDP Growth in Major Economies, 2011-16
Although the upward movement in most economic metrics was clear during 2016, the weak first half of the year meant that the world economy grew just 2.4 percent in real terms during that year on the basis of market-based exchange rates.Footnote 1-2 This represented a slowdown from the 2.7-percent growth in 2015; in fact, global economic growth was at its lowest level since 2009. Several key economic players, especially among the advanced economies, performed very well relative to expectations in the second half of the year after a weak first half—in particular the United States, the United Kingdom and Japan, though all three slowed down overall during 2016. Germany and Spain both put in a solid overall year of economic growth. Performance among the developing economies was more uneven. China’s growth remained strong while India slowed down due to its monetary reform issues and Brazil spent the year deep in recession. Commodity exporters are still recovering from the price troughs for their principal exports, while security and governance issues are slowing down several countries in the Middle East and Africa. The International Monetary Fund (IMF) forecasts growth to rise substantially in 2017 to 2.9 percent and to reach 3.0 percent in 2018; these projections contain small upward revisions from last year’s based on stronger performance of advanced economies at the end of 2016. Growth in emerging and developed economies is expected to have bottomed out in 2016 and should pick up in 2017 with Latin America and Russia working their way out of recessions. India should maintain or strengthen its impressive growth performance. Growth in the advanced economies is expected to pick up broadly in 2017 and 2018, led by the United States.
In PPP-adjusted terms, world growth slowed last year: from 3.4 percent in 2015 to 3.1 percent in 2016. Growth in the major advanced economies slowed down from the upward-revised 2.1 percent in 2015 to 1.7 percent in 2016. Nevertheless, performance in the second half of the year was so strong that the outlook for 2017 is almost uniformly positive. Most of these economies were characterized by low core inflation, rising interest rates and strengthening equity markets. The U.S. dollar continued on its strengthening path, up nearly 30 percent from its 2012 level, while the euro and the Japanese yen have weakened. Growth in the United States dropped back a full percentage point, but is now based on a stronger foundation and poised to spring forward next year. Growth in the eurozone slowed down from 2.0 percent in 2015 to 1.7 percentFootnote 1-3 in 2016, and a similar slowdown occurred in the EU: from 2.4 percent in 2015 to 2.0 percent in 2016. While Germany accelerated to 1.8-percent growth, the United Kingdom slowed down to the same pace; growth in France and Italy moved mostly sideways. Japan revised its national accounts upward and found growth in 2016 at 1.0 percent, considerably above expectations with strength coming from net exports. Forecasts for growth among the advanced economies are stronger than previously expected due to the projected cyclical recovery in manufacturing and a rise in confidence.
PPP-Adjusted Growth by Major Regions,
2013-2016 and Forecast 2017-2018
Growth in the emerging and developing economies slowed down for the sixth straight year, from 7.4 percent in 2010 to 4.2 percent in 2015 and then to 4.1 percent in 2016. Among the positive factors in that performance was the measured strength of China’s growth; a return to positive growth in RussiaFootnote 1-4 and the surrounding area of Commonwealth of Independent States (CIS); and the strengthening of several economies in the Middle East. But there were also conspicuous weaknesses: a late-year slowdown in India; Latin America slipping into a recession; and substantial hits to growth in Turkey, Saudi Arabia, Nigeria and South Africa. These latter were due to idiosyncratic local conditions such as wars, insurrections, corruption and coups. Overall, performance has been weakening due to the continued adjustment to declining demand from China and the hangover of the weakness in resource prices, the latter particularly relevant for commodity exporters. There were also continuing conflicts in the Middle East and the Commonwealth of Independent States (CIS) and a global rise in tension and rhetoric directed across borders. Growth expectations for the emerging and developing economies have been slightly downgraded, but the forecast is for acceleration and improvement overall, as well as in most individual economies.
The United States lost momentum at the beginning of the year 2016, resulting in a rather weak economic performance for the year with 1.6-percent growth, its slowest pace since 2011. Growth is expected by most forecasters to improve substantially in 2017 and especially in 2018, but this is partly due to the assumptions of supportive fiscal policy; this may prove to be a risky assumption. Nevertheless, under most scenarios, the cyclical recovery in inventory accumulation and growing consumer confidence underpinning domestic demand should result in higher growth performance. The measured rise in interest rates should continue to support the strength of the U.S. dollar and thus continue a drag on growth coming from net exports. Growth is also expected to stay at present levels in the eurozone, as the fiscal stance becomes more supportive and the lower currency value stimulates net exports. Uncertainty about the future ties with the United Kingdom could put a damper on economic activity, as will weak productivity growth, adverse demographics, and unresolved debt overhang problems in some countries. Slower growth is expected in Germany, Italy and Spain, while France should speed up slightly.
The United Kingdom has performed better than expected after the June 2016 Brexit vote, and this is forecast to continue through 2017, with growth slowing in 2018 as the result of the expected increase in barriers to trade, financial activity and migration. Japan received a boost from net exports in 2016, and good numbers are expected in 2017, with subsequent moderation. Most other advanced economies are expected to accelerate, including Canada and Australia. In the newly industrialized economies (NIEs) of Asia, growth in 2017 will improve in Hong KongFootnote 1-5 (to 2.4 percent), Taiwan (to 1.7 percent) and Singapore (to 2.2 percent), with strong support coming from an expected strengthening of China’s import demand. A small decline in growth will occur in South Korea (down to 2.7 percent in 2017) due to high political uncertainty and phasing out of temporary support measures.
In developing economies, China is expected to slow down to 6.6 percent in 2017 and to 6.2 percent in 2018. This represents an upward revision and reflects a stronger momentum in the second half of 2016, continued policy support from credit growth and government policies. However, current growth rates will not be sustainable due to continued headwinds from the housing market correction and debt overhang. India is projected to slow down to 7.2-percent growth in 2017, largely because of the frictions associated with the implementation of the recent currency exchange program; this pace should rise to the vicinity of 8 percent in the medium term. Slight acceleration is expected for most of Southeast Asia. The outlook for Mexico has weakened to 1.7 percent in 2017 and 2.0 percent in 2018, as prospects for investment and consumption are clouded by uncertainty and tighter financial conditions. Brazil is projected to emerge from its deep recession and turn in marginally positive growth in 2017, growing up to 1.7 percent in 2018. Activity in Argentina is set to grow at 2.2 percent in 2017 after contracting last year, supported by stronger public investment and consumer confidence. Russia is exiting recession, and growth is expected to reach 1.4 percent in 2017. Stronger oil prices and easing financial conditions will underpin the recovery in Russia and the surrounding CIS region. After a year of strong growth, the outlook has weakened for the Middle East and North African countries (MENA); overall growth is projected at 2.6 percent for the region. Conflict, uncertainty and the agreement to cut oil production are behind the softening growth. Recovery for the sub-Saharan African countries (SSA) is expected to be modest, with Nigeria returning to positive growth and South Africa doing slightly better than the 0.3-percent growth pace of 2016. Main risks to the outlook remain tilted to the downside and dangerously correlated (meaning that incurring one risk simultaneously makes incurring other risks more likely). These include: risks of disruption of global trade, capital flows and migration; risks proceeding from the U.S. policy agenda; financial deregulation; tightening of credit in the emerging markets; and geopolitical risks.
The growth of world trade volumes in 2016 was a very weak 1.3 percent, significantly below the 2.4-percent growth in real world output. This was the first year since 2001 that world trade grew at a slower pace than world GDP. In 2015, global trade and output grew at the same rate of 2.6 percent, but over the last three decades the growth in world trade has normally outpaced growth in output. According to the WTO, growth slowdown in trade was due to cyclical factors as global economic activity decelerated, particularly in emerging and developing markets. There was also a structural change in the relationship between growth and trade, as global investment was particularly weak in 2016. Overall, developed economies’ imports grew 2.0 percent last year, while developing economies’ imports stagnated at 0.2 percent. Exports showed modest growth from both developed and developing economies.
Asia’s real imports declined in the first quarter of 2016, affected by the financial turbulence in China and its regional trading partners. Growth resumed for the rest of the year, and ultimately Asia recorded a growth of 2.0 percent during 2016. Imports contracted in South America (as Brazil struggled through the end of its recession) as well as in “other regions” (comprising Africa, the Middle East and the CIS), both driven partly by low commodity prices. North America’s exports and imports have been mostly flat for the duration of 2016; North America’s contribution to the weakness of world imports was considerable. In 2015, its import growth accounted for 42 percent (1.2 percentage points out of the world’s import growth of 2.9 percent); in 2016, the region contributed only 0.1 percentage point to world import growth of 1.2 percent. For the second straight year, Europe’s recovering imports made a substantial positive contribution to world trade (39 percent of the total increase), while Asia contributed the most in 2016 (49 percent of the total). Projections, partly based on leading indicators, call for world trade volume growth to rebound to 2.4 percent in 2017. Due to the high level of uncertainty in the global economy, a range of 1.8 percent to 3.6 percent is also given for 2017 growth, and a range of 2.1 percent to 4.0 percent for 2018 growth.
Nominal world imports measured in U.S. dollars declined again in 2016, losing 3.2 percent of their value to end up at US$15.8 trillion. The strengthening of the U.S. dollar versus many currencies contributed to the observed decline. After three years as the greatest merchandise trading nation in the world, China passed the leadership of world trade back to the United States. World imports of commercial services were essentially unchanged in value during 2016 (volume statistics for services are not available), but their transport services component fell rather ominously, down 4.7 percent.
Overview and Prospects for the Global Economy
Global GDP growth was recorded at 3.1 percent in 2016 (PPP-adjusted), which was nearly equal to the forecast of 3.2 percent made a year ago. This bodes well for the prediction of improved performance for world growth next year. According to the IMF, PPP-adjusted growth will rise to 3.5 percent in 2017 and to 3.6 percent in 2018 (or, if calculated with market-based exchange rates, to 2.9 percent and 3.0 percent, respectively). Forecasts call for improved performance both from advanced economies, at 2.0 percent for 2017 and 2018, as well as from developing economies to 4.5 percent in 2017 and 4.8 percent in 2018. The overall outlook is fairly strong, but risks remain tilted to the downside.
|Regions (PPP aggregates)||2016||2017||2018|
|Latin America and Caribbean||-0.1||1.1||2.0|
|Middle East and North Africa||3.9||2.6||3.4|
|Countries (market-based aggregates)||2016||2017||2018|
In the advanced economies, the stronger outlook is due to the projected cyclical recovery in global manufacturing and strengthening consumer and business confidence. Greater stability in oil prices as well as generally supportive monetary policies will aid as well. Fiscal policy is expected to remain neutral overall, but with slight easing compared to 2016. Some countries (Canada, Germany and France) are expected to adopt an expansionary fiscal stance while others (Australia, South Korea and the United Kingdom) will be under some contractionary pressure. In the United States, sizeable fiscal stimulus is not expected before 2018.
The emerging and developing economies have been decelerating since 2010, but that deceleration was the slowest in 2016, only 0.1 percentage point down from 2015. This gives renewed strength to expectations of them breaking out of this trend next year; as it stands, most of the projected pickup in global growth will be coming from stronger activity in these economies over the short and medium term. This outlook suggests the stabilization and recovery in several commodity exporters, strengthening growth in India, and cyclical upturns in Brazil and Russia. Offsetting these to some extent will be China’s gradual slowdown as it shifts to a more sustainable growth pattern. Latin America and the Caribbean will break out of negative growth in 2017. Improved commodity prices will still remain structurally lower than in the recent past and will force protracted adjustments to lower revenue streams in many commodity exporters, putting a lid on their growth. Mexico and Central America will benefit from the strength of the U.S. recovery, but that is outweighed by the political risks to these countries. Elsewhere, domestic and foreign conflict as well as geopolitical tensions will affect the prospects of several countries in the MENA as well as SSA regions.
Overview and Prospects for World Trade
Real merchandise exports of developed economies grew 1.4 percent in 2016, while the exports of developing economies grew 1.3 percent. Exports from South and Central America led the world in 2016 with a 2.0-percent increase, with Asia not far behind at a 1.8-percent pace. Europe produced a healthy 1.4-percent growth, while North America’s real exports struggled for the second consecutive year, showing just 0.5-percent growth. Last year’s WTO forecast correctly projected export growth in the developed economies to pull ahead of the developing world in 2016; for 2017, it suggests the widening of that gap by another half a percentage point as developed economies double their real trade growth. Overall growth is expected to jump more than a percentage point to 2.4 percent in 2017, although bounded by considerable bands of uncertainty between 1.8 percent and 3.6 percent.
|Value US$B||Share (%)||Growth (%)|
|South & Central America||511||3.3||-5.6|
Nominal world merchandise exports (measured in U.S. dollars) declined once again in 2016, down 3.3 percent to US$15.5 trillion. Substantial fluctuations in exchange rates were chiefly responsible, primarily the strengthening of the U.S. dollar.Footnote 1-6
The value decline in world exports was broad-based, affecting most of the regions and large economies, but particularly commodity exporters. The CIS recorded a 16.2-percent decline in its exports, followed by Africa with 11.5 percent, while the Middle East was not far behind with a 9.5-percent decline. Nominal exports were the least affected in Europe, edging down 0.3 percent. Among the large economies, the decline in Russia’s export revenues stood out at 17.5 percent. Export decline was 11.0 percent for the United Kingdom, 7.7 percent for China and 4.8 percent for Canada. In contrast, Germany, Italy and Japan increased the value of their exports during the year.
In 2016, once again, real merchandise imports of the developing economies scarcely grew (up 0.2 percent). A sharp 3-percent decline in the first quarter of the year was the culprit (11.6 percent on an annual basis). While growth resumed in the second quarter, the rest of the year was spent in recovering these losses. The primary causes were the continued downturn in the investment boom in Asia, aggravated by China’s financial turbulence in the first quarter and the shoring up of the balances of commodity exporters whose export revenues went through a structural decline recently. Meanwhile, real imports of developed economies slowed to 2.0 percent in 2016. Europe led all regions with 3.1-percent import growth, while Asia’s imports grew 2.0 percent. North America’s imports moved mostly sideways, while there was a steep drop in South and Central America’s real imports of 8.7 percent. The collective real imports of Africa, the CIS and the Middle East also fell, down 2.4 percent. These declines are expected to reverse by 2017.
|Value US$B||Share (%)||Growth (%)|
|South & Central America||533||3.4||-14.5|
In nominal terms, world merchandise imports fell 3.2 percent on the year to US$15.8 trillion. Just as in the case of exports, the largest influence was from the exchange rates and particularly the strong U.S. dollar. Import values were down in all regions with the exception of Europe, which showed small growth of 0.2 percent. Elsewhere, CIS showed the lowest decline at 2.6 percent, closely followed by North America whose imports were down 2.9 percent.
The value of imports in Asia declined more substantially, down 4.7 percent. The Middle East followed with a 7.2-percent decline and Africa with 9.5 percent. The imports of South and Central America fell by 14.5 percent, a second consecutive large decline.
Among the large economies, Brazil saw the greatest decline in its imports value, with a fall of 19.8 percent during 2016. Asian countries experienced large import declines: India’s down 8.6 percent, Japan’s down 6.3 percent and China’s down 5.5 percent. The combined NIE import value also shrank, by 5.8 percent. The United States imported 2.8 percent less in 2016, while imports increased marginally in Germany and substantially (up 1.5 percent) in the United Kingdom.
Europe remained the world’s leading importer, at 37.5 percent of the global trade. Asia’s imports accounted for 30.3 percent; together these two regions import two-thirds of the world’s merchandise. North America’s share is just under 20 percent, while Africa, the CIS and the Middle East together account for about 10 percent of global imports.
In contrast to the significant decline in the value of merchandise exports, the value of world services exports (measured in U.S. dollars) was largely unchanged in 2016, rising 0.1 percent to reach US$4.8 trillion. This was on the heels of a 5.5-percent decline in 2015. Goods-related servicesFootnote 1-7 registered the largest gain of all categories as their value increased 2.1 percent, followed by a 1.8-percent increase in travel exports and a 0.9-percent rise in commercial services exports. However, these gains were offset by a 4.7-percent decline in transportation services.
|Value US$B||Share (%)||Growth (%)|
|South & Central America||140||2.9||-0.1|
|United Arab Emirates||26||0.5||-|
On a regional basis, Asia recorded the highest increase in services exports, up just 0.9 percent on aggregate. This masked a large disparity between its constituent countries: India’s exports grew a mild 3.5 percent; Japan’s a stronger 6.5 percent, while China’s exports declined 4.3 percent. North America also registered a small increase in the exports of services, up 0.5 percent, with Mexico showing the largest growth at 5.3 percent and the United States the smallest at 0.3 percent. Canada’s services exports increased by 1.3 percent.Footnote 1-8 South and Central America’s services exports were nearly unchanged, as Brazil’s decline of 1.3 percent was outweighed by other countries’ growth.
Europe saw a marginal 0.3-percent reduction in services exports, in spite of Germany’s 2.8-percent growth. Exports of services from the United Kingdom dropped 5.2 percent, with France’s exports also slowing by 2.5 percent. The collective exports of Africa, the Middle East and the CIS recorded a 0.6-percent decrease; Egypt stood out with a 23.3-percent decline in services exports.
Europe continued to be the world’s leading provider of services, accounting for 47.1 percent of global value of exported services, due largely to intra-EU trade in services. Asia ranked second, with just over a quarter of the global exports (US$1.2 trillion), while North America was third, with US$0.8 trillion—accounting for 17.6 percent of the global services exports in 2016.
The total value of world services imports rose 0.5 percent to US$4.6 trillion in 2016. Services imports expanded 2.6 percent in Asia, 2.2 percent in North America and 1.1 percent in Europe. South and Central America decreased their imports of services by 4.8 percent relative to the previous year, while the combined imports of Africa, the Middle East and the CIS recorded a 7.4-percent decline.
|Value US$B||Share (%)||Growth (%)|
|South & Central America||165||3.6||-4.8|
|United Arab Emirates||66||1.4||-|
North America’s results were once again driven by the strong performance of the United States, which registered a 3.2-percent increase in services imports. Canada’s imports of services declined 1.7 percentFootnote 1-9 while Mexico’s were stable. In Asia, a stronger than average performance was reported by large economies (China, Japan and especially India) only to see the regional growth dragged back through stagnation in the NIE’s services imports.
Brazil was behind the decline in services imports of South and Central America, as its own imports fell 10.8 percent. In Europe, Germany and France consumed more services imports, while imports of services by the United Kingdom fell substantially (down 8.9 percent). Elsewhere, Russia’s services imports shrank by 16.4 percent, while imports in Egypt and South Africa also fell (down 3.3 percent and 3.7 percent, respectively).
Europe remained the largest importer of services, with 42.1 percent of the world’s imports in 2016, followed by Asia with 30.5 percent. North America’s import share equalled 13.1 percent, while Africa, the Middle East and the CIS combined for 10.5 percent of the total.
2. Economic and Trade Developments: Regional and Country Overview
Although the global economic outlook improved substantially during the second half of 2016, global economic growth for the year as a whole was lower than expected. Revised data indicate that on the PPP-adjusted basis,Footnote 2-1 global GDP grew at 3.5 percent in 2014, slowing down to 3.4 percent in 2015 before dropping to 3.1 percent in 2016. There were numerous disruptions to the normal economic and financial activity in the first half of 2016 that included vulnerable financial conditions in emerging markets, uncertainty about China’s near-term prospects and the implications of the United Kingdom’s vote to leave the European Union (i.e. “Brexit”); as a consequence, overall growth was estimated at 2.9 percent in the first half of 2016.
Activity was sluggish in the first two quarters in the United States and many other advanced economies. After the mid-year point, growth in the advanced economies strengthened considerably. Market reaction to Brexit has been contained, and the worst short-run fears were not realized; response to the U.S. election in November has generally been positive in the markets. Global manufacturing activity, trade and investment have all pointed to a cyclical rebound, driven by firmer fundamentals and increased business and consumer confidence. Overall, growth in advanced economies was below the 2-percent mark reached in 2014 and exceeded in 2015. Reaching just 1.7 percent, it was nevertheless above mid-year forecasts, and is expected to return to 2.0 percent in both 2017 and 2018.
Growth in the developing and emerging economies was also uneven through the year, owing to the influences described. The good news for the commodity exporters among these economies is that commodity prices arrested their slide early in the year 2016 and started firming up. According to the IMF, oil prices were up 50 percent to US$45 per barrel between January and August 2016 and increased a further 20 percent until February 2017; coal prices followed a similar trajectory, and the principal non-fuel commodity prices also increased in the second half of 2016. The bad news is that it will take time for most of these economies to adjust to these new price levels and to restore their damaged balance sheets and normalize macroeconomic conditions. Thus the overall growth for the year in the developing and emerging economies declined for the sixth straight year. Activity slowed down from 5.1 percent growth in 2013, through 4.7 percent in 2014, 4.2 percent in 2015, and to 4.1 percent in 2016. Last year’s deceleration was smaller than those previously recorded, and conditions are favourable for recovery in trade and investment in 2017 and beyond, particularly if the geopolitical and local risks are kept contained. China’s prospects are looking favourable once again, recession is ending in Brazil and Russia, and relatively weakened currencies in many locales will have a broadly stimulative effect on exports. Growth is projected to rise to 4.5 percent in 2017 and to reach 4.8 percent by 2018.
The set of economic policy issues facing different economies is growing more similar with globalization. Nearly every country’s leadership is challenged by its domestic forces to create new and better solutions for its economic problems, to ensure stable domestic market conditions, to find secure and promising investment areas, to raise productivity, to improve income distribution, and to address infrastructure issues while including social justice in the process. Failing along any of these dimensions could easily spell political consequences, in advanced as well as in developing and emerging economies. To juggle all these priorities with a limited set of economic tools and an uncertain time horizon, while struggling against the dampening influence of the aging populations, financial and political instability and rising uncertainty is certainly challenging. But in earlier years, strong governance traditions were assumed to render advanced democratic countries immune from substantial influence of political movements on the economy. This belief does not hold anymore, increasing the risks inherent in the global economic system, and possibly exposing the next bastion of governance—international institutions—to disruption.
Considering the above picture, the key regions for Canada’s commercial policy may become more fluid in the coming years. While some constants will remain, such as the paramount importance of the United States to Canada’s economy and commerce, other regions and countries may come into greater focus according to their ability to take advantage of the opportunities that the modern global economy offers. In the coming years, the well-established and similarly structured consumer markets of the eurozone should attract renewed attention of Canadian exporters, as the expected implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) occurs. Proximity to and engagement with Latin America and the Caribbean (particularly Mexico) also make that region a priority, especially given the potential barriers in their economic relationship with the United States. At the same time, emerging Asia continues to be a global growth leader, with China and India still the lands of peerless opportunities; the trade talks with China are an important step in taking advantage of these opportunities. This chapter provides a brief overview of the most important facets of economic and trade developments in these countries and regions.
The economy of the United States slowed down in the first half of 2016 and lost the leading position in economic growth in the G7 that it won in 2015. However, positive dynamics in the second half of the year point to a much stronger performance in 2017, when it is poised to regain its growth advantage among the largest advanced economies. Although GDP growth for the year 2016 decelerated by a whole percentage point, good news from the labour market and the equity markets shored up the situation in the economy, which can also look forward to a possibility of fiscal stimulus under the new administration. The United States remains the crucial reservoir of growth for the advanced economies, doubly so for Canada, which relies on its immense market for roughly three-quarters of its exports of goods and services. The United States is expected to lead the large advanced economies in growth in 2017 and 2018, supported by the cyclical recovery in inventory accumulation, strong growth in household consumption and possibly some fiscal stimulus. Business confidence and buoyant financial markets are pricing in a more business-friendly attitude from the new administration; however, an aging population and weaker productivity growth put a damper on what can be achieved in the long run. Canada’s relationship with the United States will stay strong in the future, as the economic links between the two countries are vitally important to millions; some evolution of the trade and investment partnership in North America, however, is expected during the current presidency, with both partners prepared to look for more benefits from their relationship.
China’s economy continued its unprecedented transition from investment-based growth to domestically driven growth. The government remains committed to its targets and is successively deploying more instruments and support mechanisms to achieve its goals; however, the impact of some of these measures is yet to be tested. Dealing with the corporate debt overhang remains a considerable challenge, one that may necessitate a sharper slowdown in the next few years. In the meantime, real exports of goods and services resumed growth in 2016, though imports far outpaced them; inflation and unemployment remain stable, and the country’s economic plans retain the confidence of the markets.
Mexico has begun slowing down after two years of solid growth; real GDP expanded at a 2.3-percent pace in 2016. Mexico’s commercial role within NAFTA continues to increase, and it is a key supplier for Canada in the automotive, electric and electronic machinery, and mechanical machinery sectors. Mexico is the third-highest import supplier to Canada, providing as much merchandise as Germany and Japan combined. However, its near-term outlook is clouded as the uncertainty over U.S.-Mexico relations generates an investment and consumption slowdown; growth is forecast to decelerate considerably in 2017. This situation represents an opportunity for Canadian businesses and government initiatives; Mexico has already begun looking for closer contacts with its other important partners, such as China.
Economic growth in the eurozone stabilized just below 2 percent and is expected to hold at that level in the short term. The eurozone policy stance remains more conducive to growth than during the 2010-2013 period, and by May 2017 some of its dire electoral risks had been successfully avoided (e.g. in the Netherlands and France). While its older sibling, the political union (the EU), cracked open in 2016, the monetary union has shown considerably greater unity of purpose and outlook in the face of its diverse challenges, such as migration and security. Despite the risks and headlines, the expertise and confidence embodied in the countries of continental Europe remains very great, and with strong fiscal and monetary support as well as stable growth in their trading partners, the eurozone may yet emerge stronger from its difficult times. Historically, a large portion of Canada’s trade and investment is tied to the eurozone, rooted in shared norms, values and history. The expected implementation of the CETA will once again move the eurozone into the forefront of Canada’s commercial policy, with opportunities for Canadian businesses and consumers. This is particularly important in the era of increasing tradability of services, as Europe is the most important services hub in the world.
The countries of emerging Asia are economically attractive, diverse and adaptable, a key area for expansion in Canada’s commercial activities. Large export platforms in such areas as electrical and electronic machinery (Malaysia, Thailand and, increasingly, Vietnam), services (India), and apparel (Vietnam and Bangladesh) continue to develop. Emerging Asia has been the world’s fastest-growing region, with excellent prospects for the future. Canada is taking a major step to tighter ties with that region by opening exploratory talks on a free trade agreement with China, thus breaking substantially new ground in this area and encouraging other deals as well. China is continuing to lead this area by the sheer size of its growing economy, but its growth pace has recently been passed by India, a much poorer country.
The Honourable François-Philippe Champagne MP
Minister of International Trade