Reacting to the changing landscape of international import demand

The share of global production accounted for by emerging economies is increasing rapidly. Using GDP data adjusted for purchasing power parity (PPP), a method which attempts to account for relative price differences between countries, the gap between advanced and emerging markets GDP share has shrunk 25% over the last dozen years. And the shift of the majority share in world GDP from advanced economies to emerging economies is predicted by the IMF to occur this year.

Share of Global Imports and GDP

From 2000 to 2012, commercial services accounted for 80% of the improvement over transport, government and travel services.

Actual Data Edge: 2012
Data and projections: IMF

Correspondingly, emerging economies are now a destination for nearly 40% of global merchandise imports; this marks a 15 percentage point increase over the last decade.

Canadian merchandise export patterns have changed in response to the increasing demand by emerging economies. Canadian merchandise exports to emerging economies have grown at a 12% annual average during the last decade, which has supported their rise above pre-recession levels, while exports to advanced economies have only grown at a 1% annual average and have yet to fully recover to their pre-recession high. The rapid growth of exports to emerging economies has tripled their share of total Canadian merchandise exports since 2002 to 12% in 2012.

In the near term, Canadian firms can gain by bolstering the exports of primary and intermediate products, which fuel the developing production chains in emerging economies. For example, during the last decade, Canadian energy exports to emerging markets have grown at an annual average of 27%. Additionally, Canadian industry has an opportunity to capitalize on nascent industries in emerging economies through the export of technical expertise, often in the form of exports of professional, technical and commercial services, an area of comparative advantage for Canada given our highly skilled labour force.

As emerging economies progress, they will approach their optimal growth rates, and their consumers will become wealthier, which will lead them to demand more sophisticated, higher technology goods. This has already started with Canadian exports of non-resource goods to emerging economies tripling from a share of 3% to 9% in the last 10 years. Non-resource merchandise exports to emerging economies have been growing at an annual average of 12% compared to an average decline of 2% for comparable exports to advanced economies.

The Upshot

In addition to the opportunity for continuing growth in exports of resource-based merchandise to the emerging economies, there will be rising opportunities for Canadian exporters to grow exports of non-resource merchandise and technological knowledge as emerging economies evolve.

For more information, visit Foreign Affairs, Trade and Development Canada’s Office of the Chief Economist.

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