Exporter confidence plunged in Canada this spring, according to EDC’s latest Trade Confidence Index. The semi-annual assessment of sentiment in Canada’s exporting community hit its lowest level since the European debt crisis panic in 2012 and the post-stimulus hangover in 2011. In both of those cases, confidence didn’t stay low for long. Is today’s plunge just another temporary lull, or are we deep into export doldrums?

The results are sobering. All five index elements declined in the current survey, and for four of them, it was two declines in a row. The only exception was domestic economic conditions, which is on a four-survey slide. The sharpest drop was in perceptions of international business opportunities, hardly inspiring as it implies dampened enthusiasm for new international ventures. And it seems the home economy isn’t seen as a backstop: the view of domestic economic conditions is now at its lowest point since the Great Recession.

Views of overall economic growth are mixed. Few expect a recession this year, but just over one third of exporters expect a recession in 2020. However, the same share does not foresee a global recession until 2022 or later, a surprising result in light of both the growing gloom among analysts and current export performance. Survey respondents report that their U.S. orders are down considerably from peak levels a year ago, but on balance those who are seeing growth still outnumber the decliners by a large margin. Similarly, the export outlook is down sharply, but only to average levels seen in the post-recession period.

The same holds for the investment outlook. If the Canadian dollar holds its ground, 28% of exporters plan to increase investment. That’s down from 37% just two surveys ago, but still above the down-trend seen since 2015. As such, the drop in hiring intentions is hardly a surprise. There was a sharp rise in hiring plans one year ago, but that is now back down to pre-surge levels. However, finding skilled workers is getting even harder, rising for its fourth successive survey to the highest level since 2012. Together, these economic indicators have softened, but are still generally at respectable levels.

Protectionism seems to be a bigger concern. Foreign tariffs and trade barriers are the top challenge that current or prospective international exporters are experiencing, ahead of concerns about skilled labour, regulations or even financing. Just over one third of respondents say that protectionism is weighing on their international export and investment strategies, and they specifically cited higher tariffs, “buy American” policies and other difficulties exporting to the U.S. as their key concerns. What is more, 92% of them expect protectionism to stay the same or worsen over the next 12 months. But at the same time, 55% expect the Canada-U.S.-Mexico Agreement (CUSMA) to pass into law this year or in 2020, a positive glimmer in their gloom.

Fears about the future of trade, especially with our top partner to the south, got Canadian exporters on a diversification push that surged in the spring of 2018. With this survey’s plunge in overall confidence, the federal government’s diversification policy-push and stories of export growth in fast-paced emerging markets, you might think that diversification would still top the list. Guess again. Since agreement was reached on the terms of the deal, the desire to diversify is back to average levels, both for companies that have begun diversifying and for those who are still planning to in the coming two years. Strange.

There are a few surprises in this survey. Export growth has swooned in the early going this year, but growth doesn’t seem to be the top concern for Canadian exporters. That spot seems to have been reserved for protectionism. It corroborates one of the key points in EDC Economics’ current outlook: that global slowing is more about policy confusion than about growth fundamentals. Let’s hope, then, that the post-survey rescinding of both the steel/aluminium and threatened Mexican tariffs have lifted exporters’ spirits somewhat.

The bottom line?

Amid exporter gloom, there’s some hope. If recent U.S. moves to eliminate tariffs point to a policy trend, or better yet, a game plan that ultimately favours trade, this may be another short-lived swoon in confidence. If not, this may well get more serious.

This is a weekly commentary by EDC's Peter Hall, Vice-President and Chief Economist.