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Canada's export credit agency cut its 2012 forecast for growth in exports of goods and services on Tuesday in the wake of the European crisis, but it said exporters will see benefits next year from a recovery in the U.S. private sector.
Export Development Canada said 2012 exports would increase by 4.6 percent from 2011, down from the 7.1 percent it forecast in April. The agency also cut its 2013 export growth forecast to 6.3 percent from an earlier 7.3 percent.
Canada is heavily dependent on exports of goods and services, which accounted for just over 31 percent of gross domestic product in 2011. Around 75 percent of all exports go to the United States.
Canada, bolstered by the huge U.S. market, ran trade surpluses for more than three decades until the economic crisis of 2008. In December of that year it posted a deficit, the first since March 1976, and since then has put in a much more mixed performance as the economy of its largest trading partner has struggled.
Exporters are finding it hard to compete because of the strength of the Canadian dollar, increased competition, and weak markets. Canada recorded five straight trade deficits from April to August.
"We had a very soft underbelly in the economy in the summer," the agency's chief economist, Peter Hall, said in a phone interview, referring to investor concerns about U.S. debt and about the Greek election in June.
"There was a lot of worry ... but what we are seeing now is that that indeed was a temporary event."
Hall said Canada's close ties to the United States mean exporters will benefit as the recovery there takes hold.
Real U.S. retail sales have grown at an 8 percent annualized rate for the last three months, while housing construction is up 35 percent year-over-year, he said. Canada is a major supplier of building materials to the United States.
U.S. corporations, Hall said, are sitting on $5.7 trillion worth of cash.
"You take a slight sliver of that and that has a dramatic impact. That's the way we're adding things up ... How can you possibly have aggressive growth numbers like that and see GDP at 2 percent or less going forward?" he said.
EDC says the U.S. economy will expand by 2.8 percent in 2013 following 2.3 percent growth this year.
"The Canadian trade numbers don't look great at the moment and certainly the third quarter numbers are very disturbing. But when we put it in context, there is no reason that we have to believe that that should continue, given what's going on in the United States," Hall said.
The EDC forecast Canadian growth of 2 percent in 2012 and 2.2 percent in 2013. It said the Canadian dollar will dip from parity with the U.S. dollar this year to 97 U.S. cents next year.