New research from QBE Canada shows that Canadian companies with foreign commerce face significant obstacles from a combination of factors, including a slowing economy, rising interest rates, disruptions caused by natural disasters, and geopolitical concerns.
With a recession predicted to hit in the second half of 2023 and continue into 2024, companies are urged to prioritize resilience and diversity in light of the increasing volatility, according to Ben Hunter (pictured), director of QBE Canada.
The ever-changing geopolitical and financial landscape presents “a variety of challenges” to Canadian enterprises, according to Hunter.
According to the data, companies should prioritize resilience and diversification when confronted with rising cyber, natural disaster, and pandemic risks.
Possible extension of Canada’s recession into early 2024: So, what exactly are the dangers that global commerce faces?
The QBE analysis, which examined data compiled by Control Risks and Oxford Economics, predicts that the Canadian economy will experience a technical recession that will persist until early 2024. Next year, the effects of disturbances caused by wildfires and previous interest rate hikes are anticipated to be fully felt.
It is projected that imports will fall by 1.1% and exports of Canadian goods will remain flat in real terms next year. In 2022, Canada had a trade surplus of $40 billion due to its $618 billion in exports and $578 billion in imports.
Meanwhile, slowing growth in the US could lead to reduced commerce. The United States accounted for 76% of Canada’s export revenue, while the country’s neighbor to the south supplied 62% of its imports.
The top exporting and importing industries in Canada were also highlighted in the report. With $50.4 billion, or 26% of all export earnings from the sale of goods, metals are the top exporter from Canada. The top importers, accounting for $72 billion, or 22% of the total, were manufacturers of food items, drinks, and tobacco.
What steps may companies take to lessen the impact of potential drawbacks in international trade?
Hunter said that these considerations should prompt businesses to reevaluate their approaches to growth and resilience. He emphasized the need to evaluate present and potential trade partners thoroughly for risks and diversify sales and sourcing to other nations.
To avoid being “overly reliant” on any one country or corporation, Hunter advised keeping track of the companies involved, their locations, and their trading channels.
“Are you placing your warehouses, offices, and factories in places that could be prone to natural disasters like floods or wildfires?” Threats that weren’t major concerns for companies a few years ago are now a major factor in trade channels, which you use to transport goods to and from.
With Canada’s economy in a slump, the manufacturing sector must prioritize supply chain risk management. Importers should prioritize having many sources for component parts and supplies, whereas exporters should avoid becoming overly dependent on just one customer.
“What are your thoughts on broadening your business’s operations to include countries and companies that face less of a threat from natural disasters or geopolitical unrest?” “May I inquire?” Hunter said.
The country’s heavy reliance on the US as a trading partner highlights the significance of the Canadian dollar to US dollar ratio. Additionally, QBE Canada suggested that companies purchase currency options, futures, or currency forwards to mitigate the risk of adverse exchange rate fluctuations.
Organizations may lessen the impact of any one occurrence by honing their business continuity and disaster recovery strategies and putting them through rigorous testing.
Rising interest rates have driven up the cost of capital, Hunter added. “Thus, it is also important to consider the risk profile of companies when managing and adjusting portfolios.”
