The most recent Bank of Canada Monetary Policy Report made me laugh.
Okay, specifically, I laughed when I saw Chart 24, which showed “Non-energy exports expected to lead the recovery” as clearly leading the recovery, while “Non-energy exports not expected to lead the recovery” quite clearly not leading the recovery. You don’t say?
A footnote below the chart points to a discussion paper, which clarifies that “expected to lead” refers to a prediction made a year ago, so this chart actually shows that what they thought a year ago might happen is in fact now happening. This is good news.
For some time now, the prevailing story about Canada’s economic growth prospects has been that a stronger U.S. economy and lower Canadian dollar will lead to an increase in Canadian exports. It’s a story about how tapped-out consumers would pass the baton to exports, which would lead Canada’s economic growth and ultimately boost private sector investment.
Knowing which industries are expected to lead has important upside implications for housing markets tied to these industries’ prospects.
So, which industries are expected to lead?
Near the top of the list are metal, plastic, and rubber products linked to rising U.S. industrial production. Building materials and forestry products are also on the list since U.S. homebuilding is expected to strengthen.
Exports of aircraft, engines, and other parts are also expected to outperform owing to their place in the global supply chain amid rising investment in aerospace. Pharmaceutical and medicinal products are also singled out as potential stars now that regulatory hurdles south of the border have been cleared.
There are also exports that, until last year, had underperformed but were expected to pick up. These include: industrial machinery linked to rising U.S. investment in manufacturing, computers and peripheral equipment, audio and video gear, and various other electronic and electrical machinery, equipment, and parts. All of these exports are linked to an expected rise in U.S. business investment as U.S. economic growth continues to improve.
By contrast, exports expected to face continued headwinds include cars, trucks, and auto parts, with assembly and production being moved to lower-cost countries like Mexico and South Korea. Also high on that list are various food, beverage, and tobacco products thanks to tough competition from U.S. producers.
Furniture and fixtures, clothing, footwear, and textiles – victims of structural decline in the face of globalization – have been on the list of troubled exports for many years and will continue to face hurdles in the years ahead. Same goes for paper products thanks to our increasingly digital world.
So, that’s the rundown. Industries to be lifted by increasing international demand are expected to ramp up production. In many cases, that means investment and new jobs. That should lead to better prospects for housing markets where demand may have been softer in recent years.
Tell us, do you rely on any of these key industries where you live? Let us know in the Comments section below!
