When the gross domestic product (GDP) of foreign markets goes up, so does the purchasing power of consumers. This growing wealth, particularly in countries with an increasing population (e.g., China), is a key driver of Canada’s export growth.
GDP vs CAD: And the winner is…
FCC Ag Economics’ latest report, A Look at Global Trade 2015, looks at 20 years of Canadian export data to show that, regardless of market maturity, GDP growth increases export values more than exchange rates.
The U.S. reduced their imports from Canada during the economic downturn when its GDP suffered. By 2010, Canadian agriculture exports had fallen 24%. Only when the U.S. GDP started to rebound did Canadian exports start to climb.
GDP of emerging markets equal growth prospects
GDP doesn’t have the same impact on emerging markets’ imports of Canadian agriculture commodities and agri-food products. Their demand for Canada’s exports is not as sensitive to changes in GDP because they’ve been growing so quickly over the last five years.
China is a perfect example of this trend. As Canada’s second largest market for agriculture and agri-food exports, it has overtaken Japan, which has traditionally held second place. China’s income growth has expanded their relationships with Canadian producers. While slowing, the Chinese economy is still expected to be more vigorous than Japan in 2016, so China’s imports of Canadian manufactured food products will also grow faster than Japan’s.
Based on Canada’s 2014 export values, exports to China might grow by as much as 14.4 % ($209 million) in 2016, as a result of their expected 6.3 % GDP growth.
Below is a chart showing the possible increases to Canada’s 2016 agri-food exports, following projected increases in GDP of our top five export markets.
Japan’s expected GDP growth, a more muted 1 %, could spur an extra 5.6 % ($93 million) in Canadian exports of manufactured food products.
The star – as always – is the United States, whose GDP growth in 2016 could increase Canadian export values of food by 7.5 % ($1.4 billion). That doesn’t include Canadian exports resulting from a potentially weaker dollar.
Something to remember
As global wealth increases, major agriculture and agri-food exporters will rush to meet demand.
Canada will be only one player trying to diversify exports and gain entry to different markets.
Understanding the loonie in relation to currencies of our major trade partners and competitors is smart. Monitoring the GDP of export markets is also smart. But a focus on innovation, productivity and solid long-term relationships in new export markets is the best way to build a long-term, competitive position.
Martha Roberts, Economic Research Specialist
For more on the drivers of Canadian export values, watch the video Exchange Rates and their Effects on Canadian Exports and stay tuned for my next blog post on Emerging Markets and their Effect on Canadian Exports.