By Paul Vieira

OTTAWA -- Canadian exports are expected to grow modestly in 2017, marking the first annual gain in three years, but the fallout from anti-trade rhetoric in the developed world puts the outlook at risk, Canada's export credit agency said Wednesday.

In its semiannual outlook, Export Development Canada forecasts Canadian export growth at 3% next year, after declining 2.1% in 2015 and stalling in 2016. The energy sector is expected to drive results as oil and gas prices rebound after hitting lows in the past 12 months. Aerospace and consumers goods are also set to contribute to growth, offsetting an expected year-over-year decline in the auto sector.

The agency's forecast is based on solid U.S. economic activity and continued weakness in the Canadian currency, which has declined about 7% against the U.S. dollar since early May. Exports have disappointed in 2016, especially the nonenergy component. That sector was supposed to drive growth and help offset the lingering negative fallout from swooning commodity prices.

The Bank of Canada has said the shortfall in exports can be partly explained by weaker-than-anticipated U.S. growth, but added that so-called competitiveness challenges among Canadian firms also played a role. The export agency's forecast calls for the U.S. dollar to trade at an average 1.30 Canadian dollars through 2017.

Export Development Canada, a Canadian government-owned lender which helps finance sales for exporters, warns its call for a modest uptick in exports in 2017 is at risk due to heightened anti-trade sentiment. For instance, demands from the Belgian region of Wallonia nearly derailed the recently signed free-trade accord between Canada and the European Union.

Anti-trade rhetoric has also dominated the U.S. presidential election campaign, including vows by Republican candidate Donald Trump to renegotiate the North American Free Trade Agreement.

"With a populous tide turning against global trade, businesses are hesitant to make major moves, opting instead to 'wait and see,'" said Peter Hall, chief economist at the export agency.

In an interview, Mr. Hall said the forecast assumes a status-quo relationship between the U.S. and Canada, adding that the outlook could be adjusted once the outcome of the Nov. 8 vote in the U.S. is known.

"Clearly if there is a big disruption to trade in the form of vastly higher tariffs, or tearing up NAFTA or what have you, it would take time to work through the system," Mr. Hall said. "There would be an interim period of real uncertainty."

Mr. Hall added that exports willemerge as an important driver for Canadian growth, as debt-laden consumers pare back spending and housing slows amid new mortgage-finance rules.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 02, 2016 00:15 ET (04:15 GMT)

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