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TRANSBORDER TRENDS SPECIAL: Turnaround forecast for Ontario exports in 2004-2005

Ontario-based carriers dependent on transborder hauls took it on the chin in 2003. An assortment of economic shocks...

Ontario-based carriers dependent on transborder hauls took it on the chin in 2003. An assortment of economic shocks led to a 7.3% decline in export sales in Canada’s industrial heartland and freight volumes suffered as a result.

But Ontario export sales are expected to rebound this year and next accordng to Export Development Canada (EDC), making for a return to healthier transborder freight volumes. Trucking captures the lion’s share of export traffic to the U.S.

Ontario export sales are projected to grow by five per cent this year, after declining 7.3 in 2003, and rise another three per cent in 2005, according to a provincial export outlook by EDC.

“We are projecting varying improvements in export growth across all of Ontario’s sectors, but stronger industrial goods, forestry and agri-food shipments will lead the rebound," says EDC senior vice-president and chief economist Stephen Poloz.

Despite the overall improvement in the province’s export picture this year, the automotive sector, which accounts for almost half of Ontario exports, will likely see only modest gains of one and two per cent during the forecast period. Passenger vehicle sales in the U.S. will only increase by 0.6 per cent to 16.8 million units in 2004.

However, the outlook for medium-heavy duty trucks is more optimistic, as strong U.S. supply side recovery and forward orders for class 8 trucks before the implementation of stricter 2007 emission standards– will buttress demand for provincial class 5 to 8 trucks.

Meanwhile, continuing restrictions on U.S. steel imports and a stabilizing Canadian dollar should benefit Ontario exporters of automotive parts, though demand will remain contained by high inventories and limited assembly activity south of the border.

Fuelling demand for Ontario’s industrial goods this year is the robust expansion in global manufacturing. Exports are projected to rise 14 per cent this year and remain consistent next year as well. Supporting robust growth in 2004 are strong commodity prices and volume sales of metals, ores, rubber, plastics and intermediate inputs. Ongoing demand for pharmaceutical products and above-inflation price increases will also keep chemical sales buoyant and will reinforce the positive industry outlook.

A rebound in the investment cycle means that the machinery and equipment (M&E) sector is expected to see a reversal of fortunes with gains of three per cent and another four cent in 2004 and 2005 respectively, after declining 9.2 per cent last year. Industry gains will remain fairly modest however, as severe price deflation in the high-tech sector will dampen IT product sales revenue. IT products make up more than a third of the province’s foreign M&E exports.

The two remaining bright spots in Ontario’s export picture are the forestry and agri-food industries. After a disappointing year, forestry exports are forecast to grow 15 per cent in 2004 and nine per cent next year. In fact, the forestry sector will be the second largest contributor to Ontario’s export growth. Double-digit growth in lumber prices and a moderate increase in volume are behind this year’s strong performance. In 2005, a decrease in construction activity and more modest lumber prices will lead to slightly lower gains.

Agri-food exports will grow by six per cent in 2004 and 2005, correcting last year’s minor slump. Strengthening demand for prepared food and beverages from U.S. consumers and the end of the U.S. ban on boneless cuts of Canadian beef from cattle less than 30 months old will continue to spur demand for Ontario meat and meat preparations.

Ontario merchandise export sales were $167.7 billion in 2003 and will rise to $170.8 billion in 2004 and $175.3 in 2005. The exports from the province represent approximately 47 per cent of total export volume in Canada.

Nationally, the economy is expected to grow by three per cent in 2004 and by another 3.3 per cent in 2005. Export sales should increase by six per cent this year and two per cent next year.

A copy of EDC’s semi-annual Global Export Forecast is available on EDC’s web site:

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