Canada's State of Trade - Trade & Investment Update 2011 [DFAIT]

2,353 views

Published on

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,353
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
54
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Canada's State of Trade - Trade & Investment Update 2011 [DFAIT]

  1. 1. Canada’s state of tradeTrade and Investment Update – 2011 Including a special feature on The Evolution of Global Value Chains
  2. 2. Canada’s State of TradeTrade And Investment Update - 2011 THIS PUBLICATION IS AVAILABLE ONLINE AT: WWW.INTERNATIONAL/GC/CA/ECONOMIST-ECONOMISTE/PERFORMANCE
  3. 3. ABOUT THIS DOCUMENTC anada’s State of Trade – 2011 was prepared under the direction of Rick Cameron of the Office of the ChiefEconomist of the Department of ForeignAffairs and International Trade. The reportwas written by Rick Cameron, with contri-butions provided by David Boileau (A Fore-cast for Canadian Merchandise Exports),Pascal Blais (Decomposition of Per CapitaGDP Growth), and by Sonja Djukic of theSmall Business and Tourism Branch, Indus-try Canada (Performance of Small, Medium,and Large-sized Firms in Canadian ExportsDuring the Global Financial Crisis). Statisti-cal assistance was provided by Lydia Gos-selin-Couture and Maureen Francoeur. TheSpecial Feature was written by Aaron Sydor.Comments at the drafting stage were pro-vided by Dr. André Downs, Chief Economist,Office of the Chief Economist. Your comments concerning this year’sreport are welcome. Please direct them toRick Cameron at: << Richard.Cameron@international.gc.ca >>.© Minister of Public Works andGovernment Services Canada, 2011Catalogue no. FR2-8/2011C A N A DA’ S S TAT E OF TRADE 2011
  4. 4. Table of Contents A Message from the Minister . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .V Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .VII I. Global Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Overview and Global Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 The United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Euro Zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 The United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Box: Decomposition of Per Capita GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The Emerging Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Emerging Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Emerging Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Latin America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 The Commonwealth of Independent States (CIS) Economies . . . . . . . . . . . . .10 The Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Assumptions and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 II. Overview of World Trade Developments . . . . . . . . . . . . . . . . . . . . . . . . .15 Merchandise Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Trade Values (nominal trade) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Trade Volumes (real trade) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Prices and Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Country Ranking by Trade Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Services Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Leading Services Traders by Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 III. Canada’s Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Gross Domestic Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Gross Domestic Product by Province . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 The Canadian Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 C A N A DA’ S S TAT E OF TRADE 2011 I
  5. 5. IV. Overview of Canada’s Trade Performance . . . . . . . . . . . . . . . . . . . . . . .35 Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Goods Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Sectoral Performance of Goods Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Services Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 The Current Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 V. Key Developments in Canadian Merchandise Trade . . . . . . . . . . . . .45 Trade by Top Ten Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Merchandise Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Merchandise Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Merchandise Trade by Top Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Box: Performance of Small, Medium, and Large-sized Firms in Canadian Exports During the Global Financial Crisis . . . . . . . . . . . . . . . . . . . . . .51 Merchandise Trade by Major Product Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Energy Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Vehicles and Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Mechanical Machinery and Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Electrical and Electronic Machinery and Equipment . . . . . . . . . . . . . . . . . . . .57 Technical and Scientific Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Agricultural and Agri-food Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Minerals and Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Chemicals, Plastics, and Rubber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Wood, Pulp, and Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Textiles, Clothing, and Leather . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Consumer Goods and Miscellaneous Manufactured Products . . . . . . . . . . . . .62 Other Transportation Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Trade by the Provinces and Territories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Box: A Forecast for Canadian Merchandise Exports . . . . . . . . . . . . . . . . . . . . . . . . . .65 VI. Overview of Canada’s Investment Performance . . . . . . . . . . . . . . . .69 Global Foreign Direct Investment Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 Canada’s Direct Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Inward Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Inward FDI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Outward Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Outward FDI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Box: The 2008 Performance of Canadian Affiliates Abroad . . . . . . . . . . . . . . . . . . . .81 VII. Special Feature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85II C A N A DA’ S S TAT E OF TRADE 2011
  6. 6. Figures Figure 2-1: Change in Commodity Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Figure 3-1: Canadian Real GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 3-2: Contribution to Real GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 3-3: Real GDP Growth by Province . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Figure 3-4: Unemployment Rate in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Figure 3-5: Canada-U.S. Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Figure 4-1: Exports of Goods and Services by Major Area . . . . . . . . . . . . . . . . . .37 Figure 4-2: Imports of Goods and Services by Major Area . . . . . . . . . . . . . . . . . .37Tables Table 1-1: Real GDP Growth in Selected Economies . . . . . . . . . . . . . . . . . . . . . . .2 Table 2-1: World Merchandise Trade by Region and Selected Countries . . . . . .16 Table 2-2: Leading Exporters and Importers in World Merchandise Trade . . . .20 Table 2-3: World Services Trade by Region and Selected Countries . . . . . . . . . .21 Table 2-4: World Exports of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Table 2-5: Leading Exporters and Importers in World Services Trade . . . . . . . .23 Table 4-1: Canadian Goods and Services Trade by Region . . . . . . . . . . . . . . . . .36 Table 4-2: Services Trade by Detailed Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Table 5-1: Canadian Merchandise Trade by Top Drivers . . . . . . . . . . . . . . . . . . .50 Table 5-2: Merchandise Trade by Province and Territory . . . . . . . . . . . . . . . . . .64 Table 6-1: Global FDI Flows by Region and Selected Economies . . . . . . . . . . . .70 Table 6-2: FDI Flows into Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Table 6-3: Stock of Foreign Direct Investment into Canada by Country and Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Table 6-4: Stock of Foreign Direct Investment into Canada by Major Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Table 6-5: FDI Outflows from Canada by Region . . . . . . . . . . . . . . . . . . . . . . . .77 Table 6-6: Stock of Canadian Direct Investment Abroad by Country and Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Table 6-7: Stock of Canadian Direct Investment Abroad by Major Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 C A N A DA’ S S TAT E OF TRADE 2011 III
  7. 7. Special Feature Figure 1: Oil Prices and Global Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Figure 2: International Seaborne Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 Figure 3: Share of Canadian Exports by Air to Non-U.S. Destinations . . . . . . .91 Figure 4: Global Average Applied Tariff Rates on All Products . . . . . . . . . . . . . .92 Figure 5: Growth in Global Value Chains in Canada . . . . . . . . . . . . . . . . . . . . .92 Figure 6: Exports by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Figure 7: Share of Imports that are Intermediate Inputs . . . . . . . . . . . . . . . . . .94 Figure 8: Share of Inputs that are Imported . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Figure 9: Professional Service Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Figure 10: Global Circulation of Business Activities . . . . . . . . . . . . . . . . . . . . . . .96 Figure 11: Offshoring and Inshoring in Canadian Manufacturing . . . . . . . . . . .96 Figure 12: Inshoring and Offshoring of Business Activities in Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Figure 13: Outsourcing of Business Activities in Manufacturing . . . . . . . . . . . . .97 Figure 14: Top Motivations for Offshoring or Outsourcing - Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 Figure 15: Top Obstacles when Offshoring or Outsourcing - Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99IV C A N A DA’ S S TAT E OF TRADE 2011
  8. 8. Message from theHonourable Ed Fast,Minister of International Trade andMinister for the Asia-Pacific Gateway Since the recovery from the crisis started in July 2009, close to 540,000 jobs have been created in Canada. Not only have we now recouped all of the jobs lost during the recession, but 111,000 new jobs have been created—the bulk of which have been full-time. In addition, Canada’s fiscal posi- tion is the strongest among the G7 and is on track to be first to return to balanced budgets among the G-7. The current economic environment nevertheless continues to present both chal- lenges and opportunities of unprecedented scale for Canada. The Harper government, through the Department of Foreign Affairs and International Trade Canada, is commit- ted to working with Canadian businesses to Honourable Ed Fast achieve commercial success and improve Minister of International Trade and their bottom lines via trade, and consolidate Minister for the Asia-Pacific Gateway Canada’s competitive position as an eco- nomic front-runner in the global economy. I am pleased to present the 2011 edition The Canadian government is commit- of Canada’s State of Trade. This report pro- ted to continuing to ensure Canada remains vides an overview of Canada’s interna- an attractive and stable environment for tional commercial performance during the business investment and economic success. past year. Canada is emerging from the global reces- The economic climate of the last few sion as one of the world’s top-performing years has been very challenging. However, advanced economies; throughout the crisis after enduring the steepest recession in 80 of the past two years, the world has looked years, the Canadian and global economies to Canada as a model and an inspiration. posted robust growth. Canada has exhibited Our Economic Action Plan, a low-tax plan one of the fastest rates of economic growth for jobs and economic growth, has set the in the G-7—an economic performance that stage for success. The next phase of Canada’s the International Monetary Fund projects Economic Action Plan, Budget 2011, is will continue into the future. designed to further strengthen the financial C A N A DA’ S S TAT E OF TRADE 2011 V
  9. 9. security of Canadian families by protecting exploring the possibility of a closer eco- and creating good jobs, attracting invest- nomic partnering with Japan, and seeking to ment via a competitive tax system, encour- further deepen our trading relationship with aging innovation, and broadening and the United States through key initiatives deepening our trading relationships. stemming from a Border Vision Declaration This plan includes the pursuit of a personally launched by Prime Minister broad and ambitious free trade agenda. Harper and President Obama in February. Negotiations under the Doha Round of the Additionally, we are seeking better ties World Trade Organization remain a priority and greater access to markets via foreign for Canada, but we are not relying on that investment promotion and protection agree- multilateral initiative alone. Canadian jobs ments and bilateral air negotiation agree- depend on Canada remaining on an equal ments. They help Canadian investors and footing with its competitors, many of whom exporters grow and expand their operations are negotiating free trade agreements to their into new markets. advantage in markets of interest to Canada. Canada’s State of Trade demonstrates The government is thus continuing to that Canada’s international trade is on the aggressively move forward on opening new upswing. The Harper government is com- markets and unlocking the opportunities mitted to continuing to actively position that freer trade can offer. Canada as a trade and investment leader and Since 2006, the Harper government as a strategic business partner with access to has concluded free trade agreements with the world’s largest consumer markets. I look eight countries, and we are continuing free forward to working with all Canadians and trade negotiations with close to 50 others. investors from around the world to build on This includes trade negotiations with the the progress we have made and to pave the European Union, Canada’s second-largest way for even greater achievements in inter- trading partner, and India, one of the world’s national commerce. fastest-growing economies. We are also The Honourable Ed Fast Minister of International Trade and Minister for the Asia-Pacific GatewayVI C A N A DA’ S S TAT E OF TRADE 2011
  10. 10. SUMMARY Executive Summary and South America, to lead the global recov- I n 2010, global economic activity contin- ued to recover from the severe recession ery. This has accelerated the longer-term recorded in the wake of the global finan- structural realignment in global economic cial crisis. The economic upturn was sus- activity in favour of Asia, notably toward the tained by monetary and fiscal policy emerging economies of China and India. stimulus measures. A prolonged inventory For the year as a whole, world real GDP cycle supported the global economic recov- grew by 5.0 percent in 2010, up from a ery, as firms rebuilt their stocks in response 0.5-percent contraction in 2009. The to a more favourable global economic out- advanced economies posted economic look. In addition, further normalization of growth of 3.0 percent in 2010, after having global financing conditions and improve- registered a decline of 3.4 percent the previ- ments in consumer and business confidence ous year. In contrast, the expansion was aided the recovery. Employment conditions more robust in the developing economies, gradually improved over the course of the as growth accelerated to 7.3 percent last year, year, following widespread job losses following a 2.7-percent increase in 2009. throughout the preceding two years. The Within the developed economies, the overall improvement in the economic situa- advanced economies of Asia fared the best tion and the rebound in activity was accom- as the Newly Industrialized Economies of panied by a strong recovery in world trade, Asia advanced by 8.4 percent, while Japan particularly in the first half of the year. posted the fastest growth among the major In the second half of the year, the advanced economies at 3.9 percent. The global recovery lost some momentum in the United States posted its strongest growth light of waning support from the global since 2005, up 2.9 percent in 2010 following inventory cycle along with the retrench- a 2.6-percent decline in 2009. At the same ment of fiscal stimuli. Several countries also time, the recovery across most advanced announced consolidation measures to European nations was more subdued, with address their precarious fiscal situations. As euro zone growth registered at 1.8 percent a result, global trade dynamics also slowed after a 4.1-percent decline in 2009. In the in the second half of 2010, with trade United Kingdom, growth in 2010 was even expanding at a slower pace than in the first weaker, at 1.3 percent following a 4.9-per- six months. cent contraction the previous year. However, However, the pace of the recovery was Germany posted a stronger increase of 3.5 rather unbalanced across regions. In percent last year. advanced economies, the pickup remained Growth in emerging Asia outpaced all fairly modest. At the same time, the emerg- other regions in 2010, led by China and ing economies experienced continued buoy- India at 10.3 percent and 10.4 percent, ant economic growth, particularly in Asia respectively. The next fastest-growing region C A N A DA’ S S TAT E OF TRADE 2011 VII
  11. 11. SUMMARY among the emerging economies was Latin remained 5.4 percent below their 2008 peak America and the Caribbean. Growth in that level, in U.S. dollar terms. Expressed in U.S. region, which posted a 6.1-percent expan- dollars, Canadian merchandise exports to the sion in real output last year, was led by world grew at the same pace as overall world Brazil, which advanced by 7.5 percent. Sub- exports, or by 22 percent in 2010. At the Saharan Africa avoided a contraction during same time, Canadian exports of services grew the global recession of 2009 and grew rap- at nearly double the pace of world services idly last year, up 5.0 percent. The economic exports—15 percent versus 8 percent. How- performance of the Commonwealth of Inde- ever, these metrics are based on data con- pendent States region and that of emerging verted into U.S. dollars and they include the Europe were similar in 2010, with the former effect of the appreciation of the Canadian growing by 4.6 percent and the latter by 4.2 dollar against its U.S. counterpart. percent, while growth in the Middle East In Canadian dollar terms, Canadian trailed all other regions, coming in at 3.8 exports of goods and services to the world percent for 2010. rebounded by 8.7 percent in 2010, with In line with the recovering global eco- goods exports ahead by 9.5 percent and serv- nomic situation, the pace of Canadian real ices exports up by 4.4 percent. On the economic activity rebounded in 2010, up by imports side, imports of goods and services 3.1 percent after having suffered a 2.5-per- rose by 9.2 percent, as goods imports cent decline a year earlier. The economy advanced by 10.4 percent and services began expanding in the second half of 2009 imports were up by 4.0 percent. and posted growth in all four quarters of Overall, Canadian exports and imports 2010. Output expanded in all provinces and of goods and services to and from all major territories in 2010. All major expenditure markets increased in 2010. Gains in goods categories advanced, with the exception of and services exports were led by Japan, the net trade. Inflation remained subdued, at 1.8 EU, and the United States, with advances of percent for the year. Job growth resumed in 10.5 percent, 10.4 percent and 8.8 percent, 2010 after a setback in 2009. Job gains were respectively. For imports of goods and serv- widespread both regionally and sectorally, ices, the advances were led by the rest of the although not all regions or sectors posted world and Japan, with imports up 12.8 per- gains. The national unemployment rate fell cent and 9.4 percent, respectively. from 8.3 percent in January to 7.6 percent By sector, most of the advances in in December, averaging 8.0 percent for the goods exports were recorded for industrial entire year. Largely as a result of rising com- goods and materials, automotive products, modity prices, the Canadian dollar appreci- and energy, while exports of machinery and ated against all major currencies and ended equipment, other consumer products, and the year above parity with the U.S. dollar. agricultural and fishing products fell. In After the sharpest recorded contraction contrast, imports were up across the board. in 2009, the volume of world trade Services exports and imports were up in all rebounded in 2010 with the greatest major categories, except for exports of gov- recorded expansion, returning to its pre- ernment services and imports of commercial recessionary level. However, because of lower services. Canada traditionally runs services commodity prices in 2010 than in 2008 (e.g., trade deficits for travel, transportation, and crude oil), world merchandise exports commercial services and a surplus for VIII C A N A DA’ S S TAT E OF TRADE 2011
  12. 12. SUMMARYgovernment services; however, in 2010, of GVCs will continue to grow, or stagnate—the country posted its first trade surplus or even decline. Claims that GVCs havefor commercial services. arisen due to declining transportation costs The appreciation of the Canadian dol- and improving information and telecommu-lar against the other major currencies caused nications technologies (ICTs) have not yetsubstantial downward revaluations of Cana- been substantiated. Indeed, recent researchdian direct investment abroad in 2010, low- indicates that the current rise of the GVCering the value of direct investment may be less influenced by the costs of trans-holdings abroad by $35.5 billion. Thus, portation in a traditional sense, and more bydespite the net acquisitions and the strong the increased speed of transportation. Thisinvestment in existing affiliates during the argument is supported by evidence showingyear, there was an overall 0.7-percent that a growing share of trade, particularly indecrease in the value of Canadian direct intermediate inputs, occurs by air—a fast, yetinvestment abroad last year. At the same relatively expensive mode of transportation.time, foreign direct investment inflows into Likewise, the role of enhanced ICTs in tradeCanada picked up in 2010, and increased remains unconfirmed. Other key factors,the stock of inward direct investment in which include declining tariff rates and theCanada by 2.6 percent. Notwithstanding opening to trade of a large portion of thethese movements, the stock of Canadian global economy, may be more significantdirect investment abroad still exceeded that and, more importantly, under the control ofof foreign direct investment in Canada. policymakers. Three trends are increasingly associatedSpecial feature: The evolution of with the rise of the GVC: outsourcing, off-global value chains shoring, and inshoring involve the move-A key structural change in the global econ- ment of production activities out of a firm,omy in recent decades has been the rising out of a country, and into a country, respec-importance of global value chains (GVCs). It tively. Despite the prominence that theyis increasingly rare that a good or service is receive in the media, according to recent evi-completely produced in one location and dence, offshoring and inshoring are rela-then the final good exported to the end con- tively rare occurrences. Furthermore, theysumer in another. Rather, value chains are tend to balance each other out when theyfragmenting with different stages being per- are used. Offshoring of low-skill activitiesformed in different jurisdictions based on benefits Canadian companies and workerscost competitiveness. For example, design by increasing their productivity and compet-and research could be conducted in one itiveness, which in turn translates into moreplace, the assembly done in another with and better-paying jobs for Canadians. Evi-parts coming in from around the world, and dence also suggests a corresponding netthe entire process managed from a third, all movement into Canada of a number of keyto serve a global market. This implies grow- high skill activities. The extent to whiching trade, particularly in parts, but also in Canada can prosper within the rapidlyservices, as well as increased flows of people, changing global economic landscape willideas, and investment. depend on Canada’s ability to create an eco- The factors driving the growth in GVCs nomic environment that attracts and retainsare not completely understood, hence it high value-added activities aimed at improv-remains unclear whether or not the impact ing the standard of living for all Canadians. C A N A DA’ S S TAT E OF TRADE 2011 IX
  13. 13. CHAPTER 1 Global Economic Performance1 Overview and Global Prospects In contrast, many emerging and devel- oping economies have seen robust growth, T he global recovery, which gained a reaching 7.3 percent in 2010, and have low foothold toward the middle of unemployment rates. In a growing number 2009, picked up speed at the start of of these economies, there is evidence of 2010 before decelerating during the second tightening capacity constraints. Among half of last year. This slowdown reflects a emerging and developing economies, those normal inventory cycle. As businesses in Asia are in the lead, followed by those in moved to replenish depleted inventories Latin America and the Caribbean, whereas early in the year, economic activity those in eastern Europe are only just begin- expanded more rapidly. ning to enjoy significant growth. However, the pace of activity remains In most advanced economies, the geographically uneven, with employment handoff from public to private demand is lagging in several countries. Economies that proceeding smoothly, reducing concerns that are running behind the global recovery typ- diminishing fiscal policy support might ically suffered large financial shocks during cause a “double-dip” recession. Financial the crisis, often related to housing booms conditions continue to improve, although and high external indebtedness, or they are they remain somewhat fragile. In many facing financial market pressures. Broadly emerging market economies, demand is speaking, the recovery is moving at two robust and overheating is a growing policy speeds, with large output gaps in most concern. Rising food and commodity prices advanced economies and closing or closed pose a threat to poor households, adding to gaps in emerging and developing economies. social and economic tensions, notably in the In major advanced economies, eco- Middle East and North Africa. nomic growth has been modest, especially World real GDP growth is forecast to be considering the depth of the recession, reach- about 4.5 percent in 2011 and 2012, down ing just 3.0 percent in 2010 (Table 1-1). In the modestly from 5.0 percent in 2010. Real GDP United States and the euro zone, the econ- in advanced economies and emerging and omy is following as weak a path as that fol- developing economies is expected to expand lowing the recessions of the early 1990s, by some 2.4 percent and 6.5 percent, respec- despite a much deeper fall. Meanwhile, those tively. Downside risks continue to outweigh advanced economies in Asia have experi- upside risks. In advanced economies, weak enced a strong rebound. Overall, growth is sovereign balance sheets and still-moribund insufficiently strong to make a major dent in real estate markets continue to present major high unemployment rates, particularly in the concerns, especially in certain euro zone advanced Western economies. 1 Statistics, estimations, and projections in this chapter come from the International Monetary Fund’s World Economic Outlook, April 2011, supplemented by statistics from the U.S. Bureau of Economic Analysis, the Japan Cabinet Office, the European Central Bank, the U.K. Office for National Statistics, and the World Economic Outlook April 2011 database. C A N A DA’ S S TAT E OF TRADE 2011 1
  14. 14. CHAPTER 1 Global Economic Performance economies; financial risks are also a concern prices, notably for oil, and, concurrently, as a result of the high funding requirements geopolitical uncertainty, as well as overheat- of banks and sovereigns. New downside risks ing and booming asset markets in emerging are building on account of commodity market economies. TABLE 1-1 Real GDP Growth (%) in Selected Economies (2007-2010 and forecast 2011-2012) 2007 2008 2009 2010 2011 2012 World 5.4 2.9 -0.5 5.0 4.4 4.5 Advanced Economies 2.7 0.2 -3.4 3.0 2.4 2.6 Canada 2.2 0.5 -2.5 3.1 2.8 2.6 United States 1.9 0.0 -2.6 2.9 2.8 2.9 United Kingdom 2.7 -0.1 -4.9 1.3 1.7 2.3 Japan 2.4 -1.2 -6.3 3.9 1.4 2.1 Euro Zone 2.9 0.4 -4.1 1.7 1.6 1.8 of which France 2.3 0.1 -2.5 1.5 1.6 1.8 of which Germany 2.8 0.7 -4.7 3.5 2.5 2.1 of which Italy 1.5 -1.3 -5.2 1.3 1.1 1.3 NIEs 5.9 1.8 -0.8 8.4 4.9 4.5 Hong Kong 6.4 2.3 -2.7 6.8 5.4 4.2 1 Korea 5.1 2.3 0.2 6.1 4.5 4.2 Singapore 8.8 1.5 -0.8 14.5 5.2 4.4 Taiwan 6.0 0.7 -1.9 10.8 5.4 5.2 Developing Economies 8.8 6.1 2.7 7.3 6.5 6.5 Developing Asia 11.4 7.7 7.2 9.5 8.4 8.4 of which China 14.2 9.6 9.2 10.3 9.6 9.5 of which India 9.9 6.2 6.8 10.4 8.2 7.8 of which ASEAN-5 6.4 4.7 1.7 6.9 5.4 5.7 Indonesia 6.3 6.0 4.6 6.1 6.2 6.5 Malaysia 6.5 4.7 -1.7 7.2 5.5 5.2 Philippines 7.1 3.7 1.1 7.3 5.0 5.0 Thailand1 5.0 2.5 -2.3 7.8 4.0 4.5 Vietnam 8.5 6.3 5.3 6.8 6.3 6.8 C.I.S. 9.0 5.3 -6.4 4.6 5.0 4.7 of which Russia1 8.5 5.2 -7.8 4.0 4.8 4.5 Middle East 6.2 5.1 1.8 3.8 4.1 4.2 Latin America/Caribbean 5.7 4.3 -1.7 6.1 4.7 4.2 of which Brazil1 6.1 5.2 -0.6 7.5 4.5 4.1 of which Mexico 3.2 1.5 -6.1 5.5 4.6 4.0 Africa 7.2 5.6 2.8 5.0 5.5 5.9 Emerging Europe 5.5 3.2 -3.6 4.2 3.7 4.0 1: IMF forecast for 2010. Source: IMF World Economic Outlook database, April 2011 and U.S. Bureau of Economic Analysis. 2 C A N A DA’ S S TAT E OF TRADE 2011
  15. 15. Global Economic Performance CHAPTER 1 However, there is also the potential for decline in 2010 was a more modest 3.0 per-upside surprises to growth in the short term, cent. Nonetheless, it subtracted from realowing to strong corporate balance sheets in GDP growth.advanced economies and buoyant demand The swing in inventory investmentin emerging and developing economies. added 1.40 percentage points to real GDP growth after subtracting 0.55 percentageUnited States point in 2009.Following a burst of strong growth driven by U.S. real exports of goods and servicesinventory restocking in late 2009 and early advanced 11.7 percent in 2010 after posting2010, U.S. economic growth slowed but then a 9.5-percent retraction in 2009. Thestrengthened again in the second half of improvement in exports added 1.34 percent-2010. For the year as a whole, real GDP age points to real GDP growth, reflectingincreased 2.9 percent in 2010 after decreasing widespread upturns in exports of goods.2.6 percent in 2009. It was the strongest rate Exports of services also turned up. However,of real expansion in the United States since real imports of goods and services posted a2005. The gain primarily reflected upturns in stronger rebound in 2010, up 12.6 percentexports, non-residential fixed investment, after registering a 13.8-percent decline theconsumer spending, and inventory invest- previous year. At the same time, higherment, and a smaller decrease in residential imports subtracted 1.83 percentage pointsfixed investment; an increase in imports con- from real GDP growth, mostly reflectingstituted the main drag on domestic growth. widespread upturns in imports of goods. The 1.7-percent upturn in consumer Thus, net exports became a drag on the U.S.spending in 2010 added 1.26 percentage economy in 2010, removing 0.49 percentagepoints to real GDP growth after subtracting point from real economic growth.0.84 percentage point a year earlier and Government spending slowed, reflect-reflected upturns in durables, non-durables, ing a larger decrease in state and local gov-and services. Durables in particular were up ernment spending and a slowdown in federalstrongly—7.7 percent in real terms over government spending.2009 levels—followed by non-durables Recovery in the labour market remains(2.7 percent) and services (0.5 percent). Per- sluggish. After shedding 8.75 million jobssonal incomes rose 3.1 percent in nominal between January 2008 and February 2010,terms, while headline inflation was 1.6 per- the labour market has added just undercent in 2010. 1.5 million jobs since the trough, barely suf- The rise in non-residential fixed invest- ficient to keep up with the growth of thement added 0.55 percentage point to real working-age population. The employment-GDP growth and reflected a 15.3-percent rise population ratio is thus largely unchangedin equipment and software and a smaller since the start of the recovery.2 About a thirddecrease (from a 20.4-percent drop in 2009 to of the decline in the unemployment ratea 13.7-percent decline in 2010) in structures. since October 2009—to 8.8 percent in March Residential fixed investment subtracted 2011—is attributable to a decline in labour0.07 percentage point from real GDP growth force participation, which now stands at itsin 2010. However, after declining by 24.0 lowest level in more than a quarter century.3percent in 2008 and 22.9 percent in 2009, the2 IMF World Economic Outlook, April 2011, Chapter 2.3 Ibid. C A N A DA’ S S TAT E OF TRADE 2011 3
  16. 16. CHAPTER 1 Global Economic Performance Moreover, long-term unemployment expanded by 9.8 percent after declining by and broader measures of underemploy- 15.3 percent a year earlier. For the year as a ment—including the share of workers invol- whole, exports contributed 3.0 percentage untarily working part-time or only marginally points to real GDP growth while imports sub- attached to the labour force—remain well tracted 1.2 percentage points from growth. above historic highs according to the IMF. The replenishment of inventories The agency argues that the crisis may also added 0.6 percentage point to real GDP have increased structural unemployment in growth after subtracting 1.5 percentage the United States because severe sectoral and points in 2009 and 0.2 percentage point the regional shocks have created mismatches year before. between labour skill supply and demand. Similarly, Japanese private consump- The U.S. economy is projected to grow tion reversed two years of contraction by by 2.8 percent this year, edging up to 2.9 per- expanding 1.8 percent last year. Households cent in 2012, with gradually firming private led the advance as household consumption final demand offsetting the waning support grew by 1.9 percent. Overall, growth in pri- from federal fiscal policy. The mid-December vate consumption added 1.1 percentage fiscal package implies slightly more than a points to GDP growth in 2010. half percentage point addition to growth this Weaknesses in the Japanese housing year, although recent proposals to curb fed- sector persist. The decline in residential fixed eral spending would reduce the overall investment removed 0.2 percentage point to impact of the spending. The IMF expects that real GDP growth in 2010, reflecting a 6.3-per- the drag on 2011 growth from oil price cent decline in residential investment. Japan- increases will largely offset the boost from the ese residential fixed investment had fallen by Federal Reserve’s policies of quantitative eas- 14.0 percent, 8.0 percent, and 9.6 percent in ing and from stronger net exports. Unem- 2009, 2008, and 2007, respectively. ployment is projected to remain high, Non-residential fixed investment declining only moderately to about 7.8 per- expanded by 2.1 percent in 2010, adding cent in 2012. 0.3 percentage point to real GDP growth. In comparison, non-residential investment had Japan declined by 16.7 percent in 2009 and by Japan’s growth in 2010 was the fastest among 1.4 percent in 2008. the major advanced economies, driven by Finally, government consumption sizable fiscal stimulus and a rebound in expanded by 2.3 percent last year while pub- exports. After two consecutive years of con- lic investment was down by 3.2 percent. traction, the Japanese economy rebounded Overall, public demand added 0.3 percentage in 2010, registering a 3.9-percent rate of point to real GDP growth in 2010. growth for real GDP. The pick up reflected Looking forward, there are large uncer- strong expansion of exports, a boost in tainties for Japan associated with the Tohoku inventory investment, and rising govern- earthquake. Official estimates of the damage ment and household consumption that was to the capital stock are about 3 to 5 percent partly offset by increased imports. of GDP, roughly twice that of the 1995 Kobe A 24.0-percent increase in real exports earthquake. This, however, does not account led the advances. The gain effectively for the effects of possible power shortages reversed the 23.9-percent decline in exports and ongoing risks associated with the crisis in 2009. At the same time, real imports at the Fukushima Daiichi nuclear power 4 C A N A DA’ S S TAT E OF TRADE 2011
  17. 17. Global Economic Performance CHAPTER 1plant. Assuming that the power shortages countries that have come under market pres-and the nuclear crisis are resolved within a sure (e.g., Greece, Ireland and Portugal) willfew months, the IMF projects growth in continue with sizable front-loaded consoli-Japan to slow to 1.4 percent in 2011 before dation. Additionally, financial systems inrecovering to 2.1 percent in 2012. Europe remain vulnerable and several key issues need to be addressed. In particular,Euro zone questions about asset quality remain largelyIn Europe, the recovery is proceeding mod- unresolved while some euro zone banks faceestly. Overall, real activity in the region significant capital shortfalls.remains below its potential level and unem- Euro zone real GDP is projected toployment remains high, with substantial vari- grow at 1.6 percent in 2011 and 1.8 percentation across economies. According to the IMF, in 2012. However, prospects across theconcerns about banking sector losses and fis- region are divergent, largely reflecting differ-cal sustainability led to widening sovereign ences in the state of public and private sectorspreads in euro zone countries, in some cases balance sheets and the stance of macro-reaching highs not seen since the launch of economic policies.the Economic and Monetary Union. In particular, growth in Germany is After posting a 4.1-percent decline in expected to moderate from 3.5 percent lastreal GDP in 2009, growth in euro zone real year to 2.5 percent this year and 2.1 percentoutput was up 1.8 percent last year. Gains next year, mainly due to the withdrawal ofwere modest across most sub-components of fiscal support and the slowdown in externalGDP with the exception of trade, which demand growth. In France, growth is pro-posted vigorous rates of expansion. jected to fall in line with the euro zone aver- Real exports were up 11.6 percent in age, rising to 1.6 percent this year and2010 while real imports advanced 10.7 per- 1.8 percent in 2012, as consumption growthcent as net exports contributed 0.8 percent- is subdued by the retrenchment of fiscalage point to overall GDP growth. stimulus and export growth is weakened by The remaining 1.0 percent of growth slowing external demand. In Italy, the recov-came from domestic demand. Private con- ery is expected to remain weak, as long-sumption and inventory replenishment both standing competitiveness problems constraincontributed 0.5 percentage point to real export growth and the planned fiscal consol-growth, as real consumption was up 0.8 per- idation weighs on private demand. Growthcent. Government consumption was also up, in Italy is forecast to fall below the euro zoneadvancing 0.7 percent to contribute a further average over the next few years, at 1.1 per-0.2 percentage point to growth; however, a cent for 2011 and 1.3 percent for the follow-0.8-percent decline in euro zone gross fixed ing year. The austerity measures taken incapital formation (GFCF) removed 0.2 per- response to the sovereign debt crisis will par-centage point from growth. For GFCF, it was ticularly impact those economies mostthe third consecutive annual decline. closely associated with the crisis: Greece is The euro zone is not without its prob- projected to contract by 3.0 percent in 2011;lems and the outlook is for a continued grad- Portugal is also projected to post a decline ofual and uneven expansion. In 2011, the 1.5 percent this year; and Ireland and Spainlargest economies in the region (e.g., France, are expected to post modest gains of 0.5 per-Germany and Spain) will implement meas- cent and 0.8 percent, respectively.ures to reduce their deficits, while other C A N A DA’ S S TAT E OF TRADE 2011 5
  18. 18. CHAPTER 1 Global Economic Performance United Kingdom On the domestic front, household final consumption rose by 0.8 percent during After registering the largest contraction on 2010 in contrast to a 3.3-percent decline the record in 2009, at 4.9 percent, the U.K. econ- previous year. Expenditures on durables led omy responded by posting growth of 1.3 per- the way, up 2.9 percent, followed by non- cent last year. Economic expansion was durables (1.3 percent), and services (0.5 per- registered for four consecutive quarters start- cent), while semi-durables experienced a ing with the fourth quarter of 2009. How- reduction of 0.4 percent. The upturn in con- ever, the recovery is sputtering as the United sumer spending added 0.5 percentage point Kingdom closed out 2010 with a 0.5-percent to real GDP growth. decline in economic activity in the fourth General government spending also quarter of 2010. advanced by 0.8 percent in 2010, contribut- As with its euro zone neighbours, gains ing 0.2 percentage point to growth for were most vigorous in trade. Real exports of the year. goods and services advanced 5.3 percent in Gross fixed capital formation increased 2010 after retracting 10.1 percent in 2009. by 3.0 percent in 2010, after having fallen Goods led the increase, up 10.7 percent, by 15.4 percent in 2009. This expansion while U.K. services exports slipped 2.3 per- added 0.5 percentage point to real output cent. Overall, exports added 1.4 percentage growth in 2010. points to economic growth in 2010. Inventories also posted a small net For imports, the rebound was some- addition in 2010 of nearly £2.6 billion in what larger than that observed for exports. constant 2006 sterling pounds in contrast to Real imports climbed 8.5 percent last year a £16.0 billion drawdown a year earlier. after posting an 11.9-percent decline the year In the United Kingdom, growth is pro- before. Again, goods led the way, up 11.2 per- jected at 1.7 percent in 2011 as front-loaded cent, while services imports nudged ahead fiscal consolidation dampens domestic 1.1 percent. The increase in imports, which demand. However, the rate of expansion is are a subtraction from GDP, removed 2.4 per- expected to pick up to 2.3 percent in 2012. centage points from real growth last year. Decomposition of Per-Capita GDP Growth Economists often use a nation’s per-capita three key components, which are ana- real GDP as an indicator of the standard lyzed to determine their individual effects: of living of its citizens. Using a method labour productivity; labour force partici- called growth accounting, per-capita real pation rate; and the employment rate. The GDP growth can be decomposed into relationship between these components is described by the following equation: % Change in GDP Per Capita = % Change in Labour Productivity + % Change in Labour Force Participation Rate + % Change in Employment Rate 6 C A N A DA’ S S TAT E OF TRADE 2011
  19. 19. Global Economic Performance CHAPTER 1 Labour productivity indicates how important driver. In India, changes in themuch each worker employed within an labour force participation rate also exertedeconomy produces; the labour force par- a positive yet relatively minor effect onticipation rate indicates the proportion of per-capita GDP growth. In China, a fallingthe population that is available for the employment rate exerted a small negativeproduction of goods and services; and the effect on per-capita GDP growth.employment rate indicates the proportion In Japan, an aging populationof the available population that actually exerted a downward effect on (i.e. low-works in the economy. ered) the labour force participation rate, This methodology has been applied leaving labour productivity as the soleto ten economies (see chart) that together driver of per-capita GDP growth. Therepresent the vast majority of the global opposite is in play in the Middle East andeconomy. The results show how each of Latin America and the Caribbean, wherethe three components described above a young populace continues to enter theaffected growth in per-capita real GDP labour market in force, thus positivelyfrom 1991 to 2010 within each economy. affecting labour force growth in that In each of the ten cases, labour pro- region, in addition to productivityductivity was the largest—and sometimes growth. But even here, productivitythe only—driver of per-capita GDP growth was predominant in Latin Amer-growth. In both India and China, increas- ica and the Caribbean as well as in theing labour productivity was the most entire Developing Asia-Pacific region.Total Per Capita GDP Growth Accounting Decomposition, 1991-2010**Data: Global Insight.Source: Office of the Chief Economist, DFAIT.*Middle East Comprises Israel, Iran and Saudi Arabia.**Developing Asia-Pacific 1996-2010, Middle East 1999-2010, EU-27 1993-2010. C A N A DA’ S S TAT E OF TRADE 2011 7
  20. 20. CHAPTER 1 Global Economic Performance Between 1991 and 2010, both was partially offset by declines in the Canada and the U.S. saw similar growth labour force participation rate and the in real GDP per capita; in Canada, real employment rate. GDP per capita grew by 34.6 percent to The lesson to draw from this is that reach US$35,318 in 2010, whereas in the expanding employment or the labour U.S., real GDP per capita experienced an force can be important for improving increase of 35.0 percent, reaching standards of living. But, many countries US$42,623. However, in Canada growth with ageing populations are increasingly in labour productivity was only 23.5 per- becoming aware that the most sustainable cent over this period, but combined with and effective means by which to achieve growth in both the labour force participa- continued and long-lasting growth in tion rate and the employment rate helped standards of living is productivity, as evi- drive the growth in per-capita GDP. By denced by the massive productivity gains contrast, labour productivity grew 40.0 driving growth in China, India and devel- percent in the United States, but this effect oping Asia-Pacific. Emerging Economies same time, credit growth is accelerating in some economies (e.g., India and Indonesia), Emerging Asia and it remains high in China. Growth in emerging Asia outpaced all other Against this backdrop, growth in regions in 2010, led by China and India at emerging Asia is expected to moderate some- 10.3 percent and 10.4 percent, respectively. what, although it will continue to expand Growth was supported by strong export per- rapidly this year and next, at a projected formance, buoyant private domestic 8.4 percent for both years. Export growth is demand, and, in some cases, rapid credit expected to moderate from last year’s very growth. For the region as a whole, emerging rapid pace but will remain robust as gains in Asia grew by 9.5 percent. market share and increased intraregional However, signs of overheating are start- trade partially offset the weakness in final ing to materialize in a number of economies. demand from advanced economies. Capital Continued high growth has meant that some flows to Asia are likely to continue, driven economies in the region are now operating at by both cyclical and structural factors. or above potential. Output gaps in much of Autonomous private consumption growth the region have closed or are quickly closing. should remain strong, supported by still-rich Inflation is also on the rise. Most of the asset valuations and improved labour increase in headline inflation in recent market conditions. months has been due to energy prices along China’s growth is expected to lead the with a spike in food prices, but core inflation region, remaining at a robust 9.6 percent this has also been increasing in a number of year and 9.5 percent next year. The drivers of economies, most notably India. Furthermore, growth are expected to shift increasingly real estate prices have been rising at double- from public to private demand as stimulus is digit rates in a number of economies. At the withdrawn. Consumption will be bolstered by rapid credit growth, supportive labour 8 C A N A DA’ S S TAT E OF TRADE 2011
  21. 21. Global Economic Performance CHAPTER 1market conditions, and other policy efforts 3.3 percent range for 2011, with the excep-to raise household disposable income. For tion of Lithuania, which is projected to growIndia, growth is expected to moderate but by 4.6 percent.remain above trend, with GDP growth pro- Latin America and the Caribbeanjected at 8.2 percent in 2011 and 7.8 percent (LAC)in 2012. Infrastructure will remain a key con- Strong demand from the emerging Asiantributor to growth, and corporate investment economies has boosted world commodityis expected to accelerate as capacity con- prices, to the benefit of Latin America andstraints start to bind and funding conditions the Caribbean. More recently, with theremain supportive. The ASEAN-5 economies4 rebound in global economic activity, exportsare projected to expand by 5.4 percent in to other destinations have also bounced2011 and 5.7 percent in 2012. The ASEAN-5 back. This has encouraged strong capitalwill be led by Vietnam, where strong con- inflows and moderate current accountsumption and a recovery in investment will deficits. Despite the support to currentraise growth to 6.3 percent this year and accounts from commodity prices, however,6.8 percent in 2012. deficits are widening and are projected toEmerging Europe continue widening on the back of robustFor the region as a whole, emerging Europe domestic demand. Additionally, the gener-posted solid growth of 4.2 percent in 2010. ally buoyant conditions are associated withHowever, performance within the region was rising inflation in South and Central Amer-mixed, with Turkey leading the growth at ica. On the other hand, Mexico is not facing8.2 percent, while Croatia, Romania and overheating pressure at this time.Latvia all contracted last year. Against this background, real output The outlook is for a continued, gradual expanded by 6.1 percent last year, and is pro-and uneven expansion. Emerging Europe’s jected to average 4.7 percent in 2011 andgrowth is expected to be 3.7 percent in 2011 4.2 percent in 2012. As with any large region,and 4.0 percent in 2012. Economic prospects however, experiences vary.across the region seem to be converging For South American economies, thetoward the regional average. For leading outlook is generally positive, albeit less robustTurkey, growth is expected to moderate to than in 2010. Because of Brazil’s systemic4.6 percent this year and 4.5 percent next importance to the region, many neighbour-year. In Poland, growth is expected to remain ing countries are currently benefiting fromsolid at about 3.8 percent this year and its strong growth. However, projections are3.6 percent next year as corporate profitabil- for output growth in Brazil to slip to 4.5 per-ity rises, the absorption of EU funds contin- cent this year from 7.5 percent last year. Withues, and bank lending resumes. After that decline, growth in South America iscontracting in 2010, Croatia is projected to expected to moderate from 6.5 percent inrecord moderate growth of 1.3 percent this 2010 to 4.8 percent in 2011. Paraguay, theyear, rising to 1.8 percent next year while leading growth performer of all main LACRomania is expected to rebound to 1.5 per- economies, at 15.3 percent in 2010, will seecent this year and to 4.4 percent in 2012. its expected growth drop to a more sustain-Most of the other emerging European able 5.6 percent this year. Similarly, growtheconomies are expected to grow in the 2.8 to prospects for Argentina will fall to a more4 The Association of Southeast Asian Nations (ASEAN) comprises Indonesia, Malaysia, Philippines, Thailand and Vietnam. C A N A DA’ S S TAT E OF TRADE 2011 9
  22. 22. CHAPTER 1 Global Economic Performance sustainable 6.0 percent from last year’s Real activity in the CIS region grew by 9.2 percent. On the other hand, Chile is 4.6 percent in 2010 and is projected to expected to accelerate to 5.9 percent this expand by 5.0 percent in 2011 and 4.7 per- year, up from 5.3 percent in 2010. Venezuela, cent in 2012. However, within the region, which contracted by 1.9 percent in 2010, is growth prospects differ substantially. expected to return to growth this year, with Notwithstanding the large fiscal stimu- a 1.8-percent rate of expansion. lus implemented during the crisis (at about For Mexico, prospects continue to be 9 percent of GDP), Russia posted only a 4.0- closely aligned with those for the United percent rate of increase in 2010. Growth is States. In line with the improved outlook for projected to pick up to 4.8 percent in 2011 the U.S. economy, real activity in 2011 is pro- and 4.5 percent in 2012. Private sector jected to expand by 4.6 percent. demand is likely to remain subdued as non- In Central America, and Panama in par- performing loans in the banking system con- ticular, the recovery is strengthening on the strain credit and consumption growth. back of external demand, and output gaps Among other energy exporters, Turk- are almost closed. Support has also come menistan is expected to benefit from high from a recovery in remittance flows. These gas prices and be among the top performers trends are expected to continue and the out- in the region, growing by 9.0 percent in look for the region is for 4.0-percent growth 2011. In Uzbekistan, growth is also projected this year and 4.3-percent growth next year, to remain high, at 7.0 percent in 2011, sup- up from 3.6-percent growth in 2010. ported by strong domestic demand, public The outlook for the Caribbean coun- investment and commodity exports (includ- tries has improved in line with the global ing gold and cotton). recovery. Growth in 2011 is now forecast to For energy importers as a group, growth be 4.2 percent, rising to 4.5 percent in 2012. is projected at 5.3 percent in 2011 and Much of this, however, reflects the strong 4.9 percent in 2012 as some of these econo- performance of the Dominican Republic and mies (e.g., Armenia and Moldova) benefit post-earthquake rebuilding in Haiti. from the rebound in remittances from Russia Commonwealth of Independent and others from the return of financial sta- States (CIS) Economies bility (such as Ukraine). As in previous years, for most CIS economies, growth prospects Recovery in the CIS region is proceeding at a remain highly dependent on the speed of steady pace, following the region’s economic recovery in Russia. collapse during the crisis. Several factors are supporting the recovery. Higher commodity Middle East prices are boosting production and employ- The Middle East region weathered the global ment in the region’s commodity-exporting crisis relatively well, posting a 3.8-percent economies. Also, the rebound in real activity rate of economic growth in 2010. However, in Russia is benefiting other CIS economies spreading social unrest, rising sovereign risk through trade, remittances and investment. premiums and elevated commodity import In addition, a gradual normalization of trade prices will constrain growth prospects in sev- and capital flows to the region continues. eral Middle Eastern economies. Higher commodity prices and external demand helped boost production and exports in many economies in the region. In 10 C A N A DA’ S S TAT E OF TRADE 2011
  23. 23. Global Economic Performance CHAPTER 1addition, government spending programs Sub-Saharan Africacontinue to foster recovery in many oil- Africa managed to avoid a contraction dur-exporting economies. At the same time, ing the global recession of 2009 and grewpolitical discontent, high unemployment rapidly last year. The region trailed onlyand rising food prices are causing social emerging Asia and Latin America and theunrest in a number of countries, which is Caribbean in growth in 2010 and is secondlikely to dampen their short-term growth. only to developing Asia in the outlook for Real GDP in the Middle East region is growth in 2011. Output gaps in many of theprojected to grow at 4.1 percent in 2011, region’s economies are starting to close,edging up to 4.2 percent in 2012. But although South Africa is a notable exception.prospects for economic growth vary widely The region grew rapidly last year,across the region. advancing 5.0 percent in real terms. Domes- The group of oil exporters have the bet- tic demand growth remained robust, tradeter outlook. Growth for this group is expected and commodity prices rebounded, andto pick up to 4.9 percent this year. The macroeconomic policies continued to bestrongest performer is Qatar, where real activ- accommodative. Terms-of-trade gains areity is projected to expand by 20.0 percent in supporting the region’s external balances,2011, underpinned by continued expansion and the gradual reorientation of exportsin natural gas production and large invest- toward faster-growing regions such as Asiament expenditures. In Saudi Arabia, GDP is has been sustained.expected to grow at about 7.5 percent this Looking forward, real activity in sub-year, supported by sizable government infra- Saharan Africa is projected to expand bystructure investment. However, for Iran, 5.5 percent this year and 5.9 percent nextgrowth in 2011 is expected to stall temporar- year, but disparities will remain.ily as subsidies for energy and other products Growth in the region is projected to beare phased out—a much-needed reform that led by the region’s oil exporters. Thewill yield benefits in the medium term. Dis- expected strengthening of oil prices in 2011ruption of oil production in Libya means will help sustain the recovery for this group.that, given constraints on non-OPEC capac- As a whole, the African oil exporters are pro-ity, oil production from other OPEC suppliers jected to grow by 6.9 percent this year andis likely to increase in 2011. by 7.0 percent in 2012, led by Angola. Fol- The economic outlook is less positive lowing the sharp rebound in oil productionfor oil importers. The political turmoil in last year in Nigeria, oil output is expected toEgypt will likely curtail output and dampen stabilize this year, and the economy is set totourism receipts. GDP growth is thus expand by 6.9 percent. Most oil exportingexpected to slow to 1.0 percent, down signif- economies are planning to use the buoyancyicantly from the 5.1 percent registered in of global oil markets as an opportunity to2010. In Tunisia, growth is projected to slow return to fiscal surpluses and rebuild reserves.to 1.3 percent in 2011, down from 3.7 per- At the same time, growth in Africa’s lowcent in 2010, as expected declines in tourism income countries (LICs) is projected toand foreign direct investment harm other expand by 5.9 percent this year. Ghana, thesectors of the economy. third-largest LIC in the region, is projected to grow by 13.7 percent this year as oil produc- tion commences in the Jubilee oilfield and C A N A DA’ S S TAT E OF TRADE 2011 11
  24. 24. CHAPTER 1 Global Economic Performance growth in the non-oil sector remains robust. and the IMF regarding macroeconomic The recovery in other LICs, such as Kenya assumptions and projected fiscal outcomes, and Ethiopia, is also expected to stay strong with medium-term projections incorporating this year, supported by infrastructure invest- policy measures that are judged likely to be ment and improving agricultural production. implemented. Similarly, assumptions about However, political turmoil in Cote d’Ivoire monetary policy are based on the established has dampened growth prospects, and that policy framework in each country. economy is projected to contract by 7.5 per- One of the key assumptions of the fore- cent in 2011. cast relates to oil prices being in the US$107- In marked contrast to the robust US$108 per barrel range. There is a risk to growth in most of the region, recovery is growth relating to the potential for oil prices expected to be relatively weak in South to surprise further on the upside because of Africa, the region’s largest economy. Despite supply disruptions. The IMF has examined an already sizable output gap, South Africa is the case of a temporary disruption pushing expected to grow by only 3.5 percent in prices to US$150 per barrel and found that it 2011—a rate that is insufficient to reverse the would lower real GDP in the advanced substantial job losses of the past two years. economies, in Asia and in Africa by three- The outlook primarily reflects the lack of quarters of a percentage point, and lower strong domestic demand, as private invest- output in Latin America and the Caribbean ment is held back by excess capacity. by one-half of a percentage point. For the CIS and the Middle East, higher prices would Assumptions and Risks yield output gains. As indicated earlier, all projections in this In addition, the outlook for activity a chapter stem from the IMF’s April 2011 World year ago was unusually uncertain because Economic Outlook. In making its projections, of downside risks stemming from fiscal the IMF has adopted a number of technical fragilities. Over the course of the past year, assumptions that underpin its estimations. financial risks declined as the recovery Key among these assumptions are that (1) for gained foothold. Improvements in macro- the advanced economies, real effective economic performance and strong prospects exchange rates remain constant at their aver- for emerging market assets have supported age levels during the period between Febru- overall financial stability. Accommodative ary 8-March 8, 2011; (2) established policies macroeconomic conditions have helped ease (fiscal and monetary) of national authorities balance sheet risks and have spurred an are maintained; and (3) the price of oil will increase in risk appetite. However, significant average US$107.16 a barrel in 2011 and fiscal and financial vulnerabilities still exist. US$108.00 a barrel in 2012. In addition, The key downside risks stem from high there are a number of working hypotheses leverage and limited improvements in credit concerning various deposit rates in the quality in advanced economies and building world’s financial sectors. Interested readers credit risks in some major emerging market should consult the Outlook for further details economies. In particular, weak sovereign bal- on these technical assumptions. ance sheets in several advanced economies For the most part, the assumptions raise the potential for high volatility in inter- made by the IMF modellers are based on offi- est rates and risk premiums. Additionally, cially announced budgets, adjusted for dif- bank exposure to real estate continues to ferences between the national authorities pose downside risks. Real estate markets are 12 C A N A DA’ S S TAT E OF TRADE 2011
  25. 25. Global Economic Performance CHAPTER 1moribund in a number of advancedeconomies and the number of homes at riskof foreclosure remains significant. In themeantime, new risks are appearing becauseof booming real estate markets in emergingmarket economies. Finally, the risk of over-heating in some emerging market economiescannot be ignored. Growth in theseeconomies could surprise on the upside inthe short term because of relatively loosemacroeconomic policies, but medium-termrisks are to the downside. These risks repre-sent higher interest rates, weaker futureincome growth and the potential for a largedrop in commodity prices. C A N A DA’ S S TAT E OF TRADE 2011 13
  26. 26. CHAPTER 2 Overview of World Trade Developments level of US$16.1 trillion, largely due to the A fter the sharpest contraction on record in 2009, the volume of world impact of relatively lower commodity prices trade rebounded in 2010 to return to in 2010 than in 2008. its 2008 peak level—the greatest expansion ever registered. Merchandise Trade Global export volumes increased by Trade values (nominal trade) 14.5 percent last year. Developed economies After falling by 23 percent in 2009, world recorded export growth of 12.9 percent in merchandise exports were up 22 percent last volume terms over the course of the year year, rising from US$12.5 trillion to US$15.2 while shipments from the rest of the world trillion (Table 2-1). (including developing economies and the The factors that contributed to the Commonwealth of Independent States large drop in world trade in 2009 may have [CIS]) rose by 16.7 percent. also helped in the rebound of 2010, accord- Asia exhibited the fastest real export ing to the WTO.1 These include the spread of growth of all regions in 2010, with a jump of global supply chains and the product com- 23.1 percent, led by China and Japan, whose position of trade compared to output. The shipments to the rest of the world rose by use of global supply chains in goods produc- 28.4 percent and 27.5 percent, respectively. tion causes goods to cross national bound- Meanwhile, the United States and the Euro- aries several times during the production pean Union saw their exports growing more process; this in turn raises measured world slowly at 15.4 percent and 11.4 percent, trade flows compared to more traditional respectively. Imports were up 22.1 percent trade flows where final goods constitute the in real terms in China, 14.8 percent in the bulk of trade. Additionally, the goods that United States, 10.0 percent in Japan, and 9.2 were most affected by the downturn were percent in the European Union. consumer durables, industrial machinery, Regions that export significant quanti- etc., which were affected by tight credit and ties of natural resources (Africa, the CIS, the sharp declines in business investment. Since Middle East and South America) all experi- these goods represent a larger share of world enced relatively low export volume growth trade than of world GDP, the reduction in in 2010, but stronger increases in the dollar trade of these goods increased the magni- value of their exports. For example, Africa’s tude of the trade slump relative to GDP in exports were up 6 percent in volume terms, 2009, while the increase in trade of these and 28 percent in dollar terms. goods during the recovery of 2010 produced In nominal terms, merchandise an opposite (positive) effect. exports were US$15.2 trillion in 2010, but remained 5.4 percent below their 2008 peak 1 WTO Press Release Press/628, “World Trade 2010, Prospects for 2011,” April 7, 2011. C A N A DA’ S S TAT E OF TRADE 2010 15

×