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New trade indicator suggests positive economic picture ahead

A man holds Canadian currency in this posed photograph in Toronto, October 22, 2008.

MARK BLINCH/REUTERS

Tracking monthly trade patterns can be like watching a yo-yo.

A new leading indicator, published by Export Development Canada Thursday, aims to reflect the health of the country's exports and what lies in store.

Research has shown a causal link between use of the export agency's insurance business and Canadian export volumes. Rising claims tend to reflect a tougher trade environment and thus falling exports, while falling claims point to a better export picture.

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Exports are a weak spot of the Canadian economy and remain below pre-recession levels. The last reading on trade, for February, showed a 0.6-per-cent drop in exports, marking 11 straight months of deficits. The Bank of Canada and other economists are hoping a pickup in exports this year will drive economic growth as other drivers of the activity – housing, government spending and consumers – soften.

EDC's claims-to-premiums ratio tends to have an inverse relationship with exports. So what does the agency's new indicator show now? More weakness in March, with a 0.3-per-cent drop from a year earlier. But then a slight pickup in April, with expected exports rising 0.1 per cent.

"While the recovery may appear tentative at times, leading indicators [such as its new indicator and commodity prices] suggest a more positive picture going forward," the agency said.

Most economists do expect exports to rev up later this year as the U.S. economy – and its housing market – gain steam.

Other grounds for optimism? Commodity prices have been rising since November, a "harbinger of good news for Canadian exporters," it said.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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