ONTARIO PROVINCIAL CURRENT TRENDS
August 2007
Ongoing adjustments in Ontario's trade sector
Last year was a tough one for Ontario's exporters. International exports from the province dropped 1%, while imports rose 2%, leading to a significant increase in the province's nominal trade deficit (price effects included) for a fifth consecutive year.
As the province makes adjustments to adapt to the new economic environment, significant changes in the composition of both trading products and partners have emerged. This phenomenon has become particularly evident in the most recent economic cycle starting in 2002 that saw commodity prices and the Canadian dollar strengthen dramatically.
An analysis of the changing composition of Ontario's trade sector supports our view that several critical factors will be at play to make way for some stabilization in the province's trade sector in 2008. Three factors — commodity prices, currency effects and a rebound in U.S. demand — will ultimately help support a gradual recovery for Ontario's trade sector.
We now believe that the currency has peaked and should moderate from the recent 95 U.S.-cent trading range down to the 89-90 U.S.-cent range by the end of next year. Although we expect commodity prices to remain elevated, buoyed by support from a robust global economy, we are looking for prices to pull off their recent peaks.
Also, many of Ontario's key industries have already absorbed the initial shock of higher energy prices and have made adjustments to adapt more efficiently to a higher commodity price environment.
We anticipate a rebound in the U.S. economy starting next year and into 2009. Stronger U.S. demand, combined with evidence that productivity-enhancing investments are currently under way — particularly in Ontario's critical auto sector — will be supportive of the outlook for exporters. Courtesy of RBC
Mark
A. Mark Argentino
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