The last few years have been trying for many Canadian companies, and it’s not over, because the current global socio-economic context poses new challenges. Overview of the situation.
“To say the least, this year hasn’t turned out the way most of us expected,” admits Stuart Bergman, vice-president and chief economist at Export Development Canada ( EDC). After passing the mid-year mark, the economic outlook darkened under the effect of headwinds caused by the extremely rare convergence of multiple hazards. »
Want to know more ? Here is a ranking of the main challenges, identified by EDC, that companies considering expanding into international markets will face in the coming months.
1. The military conflict in Ukraine
Russia’s surprise invasion of Ukraine and subsequent sanctions disrupted supply chains, particularly in the grain and energy sectors, fueling inflation around the world. A possible widening of the conflict could worsen the economic outlook and have a significant impact on Canadian exports. “Right now, our baseline scenario calls for a war of attrition as the most likely scenario,” says Bergman.
2. The impact of inflation
In trying to curb inflation, central banks may have underestimated the impact of the tightening of their monetary policies on the financial sector. The rise in interest rates caused by the pandemic has had a definite impact on the demand for products and services, and everything indicates that consumer spending in North America will experience a significant slowdown.
3. The risk of a global recession
Repeated interest rate hikes by central banks will continue over the next few months, causing the economy to slow and raise the specter of a recession. “All this uncertainty is making consumers less inclined to dip into their accumulated savings during the pandemic, and businesses are more cautious about production and investment. This means that economic growth in Europe is likely to come to a standstill in a context of very high prices. The vice-president of EDC also considers that Europe is already in an economic recession, although the outlook for Canada and the United States is a little more positive.
4. Supply chains and labor issues
The pandemic and trade disputes between the United States and China, in particular, have destabilized global supply chains and heightened tensions on the side of exporters. When you add in a widespread labor shortage, you get a near-perfect storm. “All it takes is extreme weather, geopolitical uncertainty, or even a new pandemic to disrupt supply chains again, and very easily,” warns Stuart Bergman.
5. The risks associated with sovereign debt
In an environment of rising borrowing costs and slowing growth, it is likely that some emerging markets will struggle to keep up the pace, triggering a new sovereign debt crisis. More than 50 countries are currently in a precarious situation, and although EDC Economics does not foresee a major crisis at this time, this threat is very real.
6. The global energy crisis
No doubt, the war in Ukraine, the sanctions imposed on Russian gas exports, as well as a severe drought in Europe this summer – which caused a 26% drop in electricity production – are all devastating factors. for the global energy market. As Stuart Bergman explains, “wholesale electricity costs have skyrocketed, as have the price of natural gas.” Rising prices and the risk of shortages have fueled economic uncertainty around the world, and this delicate situation could worsen if the conflict were to continue or spread to other countries.
7. Global food security
Uncertainty currently hovers over the global food supply, in particular due to the situation in Ukraine – a major agri-food producer – which is disrupting supply chains. Food and fertilizers are becoming more and more expensive and, despite the fact that the richer countries manage to make the most of the game, consumers and producers are bearing the brunt of the situation. Emerging countries, which are much more vulnerable, are likely to experience a larger rise in inflation, which will have significant spillovers. It is to be expected that several emerging countries will impose restrictions on their exports, prioritizing their domestic needs rather than global trade.
8. Climate regulations
The urgent need to act to meet current environmental, social and governance (ESG) challenges requires governments and industries to multiply initiatives and commitments. “Initially taken on a voluntary basis, these commitments quickly become regulatory requirements,” explains Stuart Bergman. Companies that are not ready for these changes or that have not considered the cost of the transition could be shut out of the market. »
9. The slowdown in globalization
As a direct consequence of all the challenges mentioned above, a major transformation is taking place in the workings of international trade. Most governments are trying to reduce their economic dependence by reviewing their supply chains, increasing the number of their suppliers, accumulating inventories, and promoting vertical integration and local production. All Canadian companies that rely on exporting to prosper must carefully monitor the evolution of world markets.
10. Business failure
Throughout the pandemic, many organizations have had to go down the road of indebtedness, which has often been aided by generous loan guarantees from governments. But inflation and tighter financial conditions could pose a risk to their survival, and the possibility of a wave of defaults is very real. “The fragility of companies in the face of rising interest rates is compromising the global economy,” notes the vice-president of EDC.
The light at the end of the tunnel
Despite all of these risks, EDC Economics is optimistic about the economic outlook and expects growth of 2.2% in 2022 and 2.6% in 2023. economic downturn, but that won’t be the case for all markets,” says Bergman. Like a bicycle that becomes more and more unstable as it slows down, the economy is vulnerable and risks changing course at the slightest obstacle. “With a bike like this, all it takes to fall over is a little pebble in the road. And the problem is that our road is covered with it…”, he concludes.
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Export Development Canada (EDC) helps Canadian companies of all sizes succeed abroad. We give them the tools they need to thrive with confidence. We use our unique business knowledge and financial solutions to support and grow sustainable trade between Canada and the rest of the world, as well as the country’s competitiveness in the international market.
This content was produced by Le Devoir’s special publications team in collaboration with the advertiser. Le Devoir’s editorial team had no role in the production of this content.
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