July 17, 2008 / 2:05 PM / in 9 years

Canada exporters' confidence tumbles on U.S. woes

OTTAWA (Reuters) - Fears of a worsening U.S. economy have dragged down confidence among Canadian exporters to the lowest level on record, Canada’s federal export agency said on Thursday.

The trade confidence index, which monitors exporters’ mood on a variety of trade and economic indicators, sank to 66.1 from 67.4 in January, the lowest level in the eight-year history of the semi-annual survey by Export Development Canada.

“Canadian exporters are clearly hurting right now thanks to a major slowdown in the U.S., a slowing global economy and a persistently high Canadian dollar,” said Peter Hall, vice-president of economics and chief economist at EDC.

The United States buys about three-quarters of Canada’s exports, leaving the country extremely vulnerable when U.S. buyers scale back their purchases. Indeed, according to the survey, a quarter of exporters now see the United States as their riskiest market, second only to Asia.

The survey was conducted in April and May and involved just over 1,000 businesses.

The No. 1 response to the tough times is “riding out the storm and absorbing the losses,” EDC said. The second most popular strategy is to cut costs, but only about a quarter said they would pass on higher costs to consumers.

Exporters have also come under pressure from soaring energy costs and a strong Canadian currency, now around parity with the U.S. dollar. However, the Canadian dollar is unlikely to climb further, most exporters said.

Their pessimism about the global economy is growing, with 51 percent expecting it to deteriorate further, up sharply from 30 percent holding that gloomy outlook in the fall of 2007.

And they see slimmer chances of the domestic economy picking up the slack. Forty-two percent expect Canada’s economy to get worse, up from 32 percent just six months earlier.

Still, almost half the companies surveyed thought their international sales would improve in the near term and 77 percent expect opportunities to improve or stay the same.

That glimmer of optimism and the latest trade data suggest that exporters have been successful at tapping into markets other than the United States, the EDC said.

Exports surged 5.4 percent to a record high in May. While sales to non-U.S. markets only count for about a quarter of the total, they jumped 15 percent in value in the month, while those to the United States rose 2.4 percent.

Reporting by Louise Egan; editing by Peter Galloway

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