OTTAWA (Reuters) - Canadian automotive exports are expected to drop slightly this year but price hikes will mean a much shallower decline than in 2008, a government agency said on Thursday.
In a report by Export Development Canada, its chief economist Peter Hall forecast a 3 percent decline in exports of vehicles and automotive parts this year, compared with a 21.9 percent slide last year.
Despite poor sales volumes of cars, trucks and parts to the recession-hit United States and some price cuts, the agency expects export prices to “rise solidly on gains related to the depreciation of the Canadian dollar,” he said.
“Mitigated by the positive price effects of the loonie, nominal exports will fall by only 3 percent in 2009. Demand will begin to recover in 2010, driven by inventory rundowns, an aging fleet of vehicles and demographic factors,” Hall wrote in a report researched over the past month.
The Canadian dollar fell to a four-year low against the U.S. dollar in early March but has since risen sharply and even briefly broke through the 90 U.S. cent mark on Wednesday, marking a climb of more than 17 percent since the March lows.
But Hall does not think the currency rally will last long and so the trend of recent weeks does not alter his outlook.
“Our belief is that there’s exuberance around the nascent global recovery and our team can’t find a whole lot of reasons for this being a sustained rebound,” he told Reuters.
“The rebound is taking a lot of the hot money that went into the U.S. dollar back out and so there’s a lot of betting against the greenback at the moment. To me its not so much related to fundamentals as flight-to-quality reversing.”
Hall saw auto exports jumping 12 percent in 2010.
But the outlook is rife with risk, he acknowledged. The U.S. government’s bailout of General Motors Corp and Chrysler may put pressure on the companies to favor U.S. plants over those in Canada and Mexico, even though Canadian governments have said they will fight to maintain the country’s 20 percent share of the North American auto industry.
Factories producing passenger cars could scale back to use only half of their production capacity this year as export volumes tumble, he said.
Reporting by Louise Egan; editing by Frank McGurty